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Ulta Salon Finally Corrects as Retailers Sag

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Stock (Symbol)

Ulta Salon (ULTA)

Stock Price

$256

Sector
Retail & Travel
Data is as of
July 11, 2017
Expected to Report
Aug 24
Company Description
Ulta Beauty is a beauty retailer that offers cosmetics, fragrance, skin, hair care products and salon services. The Company offers approximately 20,000 products from over 500 beauty brands across all categories, including the Company’s own private label. The Company also offers a full-service salon in every store featuring hair, skin and brow services. The Company operates approximately 970 retail stores across over 48 states and the District of Columbia and also distributes its products through its website. Source: Thomson Financial
Sharek’s Take
David SharekUlta Salon (ULTA) is finally on a pullback — and it’s time to buy! Retailers and their stocks have been sagging this year as online sales and a consumer who stays home have hurt sales and profits. Mall-based stores are really having trouble. And that’s good for Ulta, as women need to buy their makeup from somewhere and the demise of the malls would mean more business for Ulta. This company has been delivering stellar results for years, here’s a few bulletpoints from last qtr:

  • Profits up 32%, beating the 24% estimate.
  • Sales up 22% including a 70% surge in e-commerce sales.
  • Same store sales (SSS) up a remarkable 14%.

Ulta has been delivering profit growth of around 25% to 35% for pretty much a decade now. Still, even at this age the company continues to churn out excellent results. Management expects at least 20% profit growth to continue through 2017, 2018 and 2019. The company also buys back stocks. ULTA has a solid 20% Estimated Long-Term Growth Rate but is growing around 30% right now. At 31x earnings, the stock isn’t cheap but honestly it’s been expensive since 2009. I’m taking advantage of the 15% pullback and adding the stock to my Growth Portfolio and Aggressive Growth Portfolio.  

One Year Chart
The P/E just came down from 35 last qtr to 31 this qtr. Also, these charts and tables were done yesterday when the stock was $256 — and just like that the stock is up to $265 as other investors obviously see the value. Qtrly profit Estimates are 24%, 19%, 25% and 23%. and since ULTA has beating estimates for at least the past year I can imagine 30% growth for the next year. That makes the stock a decent deal at 31x earnings.
Fair Value
My Fair Value on this stock is $291 this year and $346 next year — which would be a gain of around 30% (which is what I think profits will grow at the next year). Notice this stock has regularly had a P/E in the 30s since the stock market came out of the recession in 2009.
Bottom Line
Ulta Salon is not only dealing with the retail crunch — its thriving as well. Mall based stores going out of business will bring more customers into Ulta Salons, and if the ladies don’t want to travel to the stores they can buy their makeup and haircare products online. Last qtr I wanted to wait for the stock to fall to $275 and now its even lower. I will purchase ULTA for the Growth Portfolio and Aggressive Growth Portfolio where it will rank 12th in the Power Rankings
Power Rankings
Growth Stock Portfolio

12 of 32

Aggressive Growth Portfolio

12 of 16

Conservative Stock Portfolio

N/A

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