Headquartered in Illinois, Ulta Beauty (ULTA) sells beauty products in retail stores and online. I am bullish on the stock.
Have you ever thought about investing in a cosmetic retailer? It might sound like a dangerous proposition during a time of supply-chain bottlenecks, high inflation, and COVID-19 concerns. Amid this challenging backdrop for retailers in general, and Ulta Beauty in particular, the bull case may be difficult to see right now.
Before passing judgment on Ulta Beauty, though, it’s important to check the data and make an informed decision. You might be surprised to discover that the company is still executing strongly in multiple beauty-product categories, which suggests that consumers are still buying lots of makeup, hair-care products, and so on.
Beauty is only skin deep, as they say, but it seems that investors found Ulta Beauty’s recently posted financial results to be highly attractive. As we’ll see, they gave Ulta Beauty stock a nice boost, but there’s still strong value here for enterprising investors.
On TipRanks, ULTA scores a 10 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.
Pricey, yet Cheap
So, let’s talk about that price boost. Ulta Beauty stock has a 52-week range of $319.05 to $438.63. The stock traded in the lower half of that range not long ago, but then just recently, the buyers pushed Ulta Beauty stock to $418.
How is this possible? A crucial data release and guidance issuance might have something to do with it – but more on that in a moment. First, we should address the question of whether Ulta Beauty stock is expensive or cheap.
On a surface level, a $400-ish stock certainly looks pricey. Furthermore, the recent buying spree pushed the share price toward the upper end of its range. So, Ulta Beauty stock is too expensive to buy now, right?
Not necessarily. Even after the share-price rally, Ulta Beauty’s trailing 12-month P/E ratio is 23.26, which is quite reasonable. Hence, it’s conceivable that this $400-ish stock actually offers a good value at the current share price.
This isn’t to suggest that anyone should buy a stock solely based on a company’s P/E ratio. The most important thing is to check the company’s financials and look for growth. Although, can Ulta Beauty demonstrate growth during a time of inflation, pandemic, and supply-chain challenges?
In a conference call, Ulta Beauty President Dave Kimbell answered that question decisively, declaring, “Fiscal 2022 is off to an outstanding start with the Ulta Beauty team delivering another quarter of excellent performance on top of last year’s record results.” This should give us a clue that Ulta Beauty is, indeed, executing on its objectives and delivering powerful results despite the known challenges.
Success Across the Board
Pick a metric – any metric. Practically wherever you look, Ulta Beauty succeeded in its first-quarter fiscal-year 2022 results.
During the conference call, Kimbell served up a battery of bullet points, reporting that Ulta Beauty’s first-quarter “net sales increased 21% to $2.3 billion, comp sales increased 18%, operating profit increased to 18.7% of sales and diluted EPS increased 54% to $6.30 per share” on a year-over-year basis.
Just those stats alone should force some of the Ulta Beauty stock bears into hibernation for a while. We can already see why investors bought the shares and pushed the price higher, as Ulta Beauty is fiscally firing on all cylinders.
Plus, there’s more to the story as Ulta Beauty ended the first quarter of fiscal 2022 with a healthy balance sheet, including cash and cash equivalents totaling $654.5 million. Investors should also want to know that Ulta Beauty repurchased 331,834 shares of its common stock at a cost of $132.8 million during the quarter. This self-investment tends to suggest that the company is confident in its future growth.
Looking toward the future, Ulta Beauty offered highly optimistic guidance for the full fiscal year of 2022. In terms of net sales, the company had previously modeled $9.05 billion to $9.15 billion, but updated the range to $9.35 billion to $9.55 billion. Furthermore, Ulta Beauty is now anticipating full-year comparable sales growth of 6% to 8%, which is double the previous guidance of 3% to 4%.
Turning to the company’s expected bottom-line result, Ulta Beauty raised the guidance for its full-year diluted earnings per share from a range of $18.20 to $18.70, to $19.20 to $20.10. Between the raised guidance and the company’s share buybacks, it’s evident that Ulta Beauty is brimming with self-confidence – and justifiably so, as the company’s financials are rock-solid.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, ULTA is a Moderate Buy, based on 13 Buy and five Hold ratings. The average Ulta Beauty price target is $467.44, implying 10.48% upside potential.
Now, you have bullish financial data and guidance that might persuade you to invest in a premier beauty-product business. There are challenges to contend with, yes, but Ulta Beauty is delivering excellent results and preparing for a strong year.
It just goes to show that you can find promising investments in unexpected places. After all, a surprising success story during challenging times is a beautiful thing.
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