Stock (Symbol) |
Ulta Salon (ULTA) |
Stock Price |
$263 |
Sector |
| Retail & Travel |
Data is as of |
| October 16, 2016 |
Expected to Report |
| Dec 1 |
Company Description |
 Ulta Salon, Cosmetics & Fragrance, Inc. (Ulta) is a beauty retailer. The Company provides salon products and salon services in the United States. It offers a combination of more than 20,000 prestige and mass beauty products. As of January 31, 2015, it operated 774 stores in 47 states. The Company offers products in the categories, including cosmetics, which includes products for the face, eyes, cheeks, lips and nails; haircare, which includes shampoos, conditioners, styling products and hair accessories; salon styling tools, which includes hair dryers, curling irons and flat irons; skincare and bath and body, which includes products for the face, hands and body; fragrance; nail polish and nail care products; men’s skincare, haircare and fragrance products; private label, consisting of Ulta branded cosmetics, skincare, bath and body products and haircare, and other health and beauty products. Source: Thomson Financial |
Sharek’s Take |
 Ulta Salon (ULTA), the largest beauty store in America, expects at least 20% profit growth to continue through 2017, 2018 and 2019. Shares jumped on the news, but now sell for a lofty 42x earnings. Last qtr the company delivered 24% profit growth on 22% sales growth with a 14% increase in same store sales. Same store sales growth of 14% might be the best of any retailer today — and SSS greater than 10% in a previous qtr is usually a catalyst to send a stock higher during the current qtr. This is a great stock with an excellent management team which uses statistics and analytics to achieve superior performance. Instead of relying on discounts and price promotions, Ulta uses a sophisticated loyalty program then targeted offers and utilizes loyalty points as currency. Its website offers tremendous growth opportunity as e-commerce was 5.5% of sales in 2012, is 6% of sales today and is on track to be 10% by 2019. Ulta Salon has a 4% of the overall US beauty market (6% of products and 1% of services). This is a fantastic stock, and probably one of my worst mistakes as a money manager was not buying this when it was on my radar back in 2009. And I still make the mistake of passing on the stock, but with the shares up so much this year I’m going to be patient and look for a pullback to get in. |
One Year Chart |
 So do you see that dip down to $150 ULTA had early in 2016? That was partially due to a short seller who said the stock was worth less than $100. This is one instance where the short seller was wrong as the stock broke out past $190 on high volume in early March. That was our buy point. Still, that qtr when I did my research ULTA was $207 and had a P/E of 35 after it grew profits 25%. The stock really wasn’t a value. But the SSS grew 13% that qtr and that should have forced me to buy. Enough of the past. Last qtr ULTA beat the 20% profit estimate and delivered 25% growth. Qtrly Estimates went up and are now 23%, 22%, 23%, 24%. Annual Estimates for 2016 have risen from $5.70 to $6.29 the last 4 qtrs while 2017’s have gone from $6.84 to $7.77. |
Fair Value |
 My Fair Value is 35x earnings, and from reading other analysts research reports they have similar valuations. The catch is ULTA has its fiscal year end January 31st, so when I do my research report next qtr I’ll switch from 2016 to 2017 profit figures. Right now the stock sells for 34 times 2017 profits — a much better P/E. That would be a decent valuation to buy the stock at. And in the meantime the stock market could sell off and bring ULTA down a bit too. All stocks correct and give buying opportunities. |
Bottom Line |
 Ulta Salon is flying high but is seriously extended after breaking out at $190. A P/E of 42 is dangerous, and this reminds me of when Chipotle was growing profits around 25% yet had a P/E in the 40s. I’m not saying a drop like Chipotle had will happen here, but historical stock market books such as Stocks for the Long Run by Jeremy Siegel have preached getting good stocks in at a good valuation beats getting great stocks at a high valuation. I’m siting on my hands with ULTA. It’s on the top of my radar and I will once again hope for a correction to buy in. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio N/A |
