I’ve been waiting patiently for Ulta Salon (ULTA) to correct for years. This cosmetics retailer is one of the fastest growing companies around, and the stock has the ability to compound at 25% to 35% a year.
Not all is rosey with ULTA. The big problem is upper manegement keeps quitting. First it was a CFO, then a new CFO came aboard then quit within months. Then most recently the CEO took off to run Michaels Stores. Michaels used to be a publicly traded company (it had stock) and went private a few years ago. Now the company is set to go public again, and my guess is upper management will get stock in the IPO, so maybe this is a way to get paid.
Then ULTA tanked after it reported last quarter’s earnings. The company lowered guidance and had high inventories. ULTA has been over $100 a few times in the last year and after the fall it was $74. But the inventory thing scared me. High inventory in retail is not a good thing, and often leads to earnings estimates coming down in the future. Today ULTA is $84, this data in these charts and tables below was taken when ULTA was $74.
One Year Chart
The one year chart doesn’t do the stock justice. I like the ten year view better. What’s interesting about this chart is ULTA broke support in the low $80s and dropepd all the way to $75. People have been warning that this high-flying stock was due to crash at any time, and this looked to be the start of that decline. The only question was is $75 the bottom? Now with the stock $84, I feel more comfortable buying in if the stock gets back to $75. Luckily, the stock market now looks like it could go into a correction, so we maye get our chance. Be ready to pounce.
NxtQtr’s estimate just got reduced from 33% to 17%. That’s not good. the 2QtrsOut estimate fell from 33% to 26%. The following two quarters stayed the same, as did 2013 estimates. Its good that annual estimatres didn’t drop.
Fair Value
I think this company can grow at 25% a year, and since its a premium company with a great long-term outlook the P/E should be 27. When ULTA was $74 it had a P/E of only 22. I’d like to see it around $75 again.
Sharek’s Take
The inventory issue and lowered guidance is an issue — as is management bailing — but I love the long-term growth opportunity this stock provides. Now that we have seen ULTA bottom in the mid-$70s, I’m waiting for a stock market correction for another chance to get around that level. I’m ready to pounce. You should be too.
View the Earnings Table here.View the Ten Year Chart here.
