Time To Go Long On Ulta Cosmetics

Mar.22.13 | About: Ulta Salon, (ULTA)

About 22 million shares of (NASDAQ:ULTA) have exchanged hands since March 15th when less than expected guidance was issued following an otherwise amazing earnings report.

Shares of the cosmetics, salon and fragrance giant wiped out all of their 2012 gains in a single day - trading near 25% of the total share outstanding on the 15th and another 9 million (~15%) collectively in the following three days. Shares have rebounded nicely from the low of 72.51 set on March 15th but still have plenty of upside.

Here is why:

· Institutional ownership stands at 99% meaning there isn't a lot of small money in the stock. Most is held by insiders and large institutions who should be looking to take advantage of the overreaction.

· The stock is steadily setting higher lows. The day of the big drop and three days following showed a progressively higher low of the day.

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· ULTA announced a $150 million stock buy-back. So while the stock is already trading a small total share count that number could shrink 2 million or more if the program is fulfilled.

Balance Sheet:

· Cash and Equivalents are up 228% year over year suggesting ULTA is doing a good job capturing market share.

· Stock holder equity is up 45% year over year

· Net sales in the 4th quarter increased 30.3% to $758.8

· Comparable same store sales increased 8%

· Gross profit margin increase to 34.2%

· Selling, general and administrative expenses decreased to 20.3%

· Operating income increased 41.7% and net income increased 39.4%

· Earnings came in at $1.00 per share for the 4th quarter. Higher than the $0.98 wall street was expecting

The Growth

ULTA opened 13 new stores and remodeled an old store in the 4th quarter compared to 7 in the prior year.

ULTA is expecting to open 125 new stores this year which should contribute strong double digit growth in sales and market share for time to come.

All summed up ULTA maintains a 30 P/E right now. However this could easily move higher as the business and success of the company grows. I'd expect it to be a heavy institutional favorite for some time to come and look for continued success in the short, mid and long run.

I expect the stock to be trading in the mid 80s in the coming weeks and possibly pushing as high as the mid 90s where it was trading pre-sell off.

Disclosure: I am long ULTA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.