Entering text into the input field will update the search result below

Buy The Dip In Ulta

Jul. 12, 2017 10:37 AM ETUlta Beauty, Inc. (ULTA)3 Comments
L&F Capital Management profile picture
L&F Capital Management


  • ULTA stock is off almost 20% in the past month.
  • The drop-off plunges ULTA's valuation to a 52-week low.
  • The fundamental growth story remains intact.
  • The pullback is a great opportunity to enter a quality name at a relative discount.

Once a darling of Wall Street, Ulta Beauty (NASDAQ:ULTA) has suddenly and surprisingly turned into an ugly duckling. ULTA stock is down 17% over the past month. The big catalysts have been concerns regarding Amazon (AMZN) and cosmetic product discounting at department stores.

ChartULTA data by YCharts

This sell-off, though, looks like a compelling "buy the dip" opportunity into one of the best retail growth stories on Wall Street.

ULTA has all the makings of a "buy the dip" stock. Firstly, the valuation is cyclical. The P/E multiple has cycled between ~27.5x and ~47.5x over the past 3 years.

Secondly, the current 35.9x trailing P/E multiple is a relative valuation trough in this cycle. This is as cheap as the stock has been since a few months into 2016, when the stock was under $175 (it's now $255). This sharp of a drop in the P/E multiple (from 42.5x to 35.9x in just a few weeks) hasn't really been seen in the stock since early 2016, when the multiple compressed from ~40x to ~32.5x. That dip was a tremendous buying opportunity.

ChartULTA data by YCharts

Thirdly, nothing has materially changed regarding the ULTA growth narrative. This is the same stock that reported a blowout quarter less than 2 months ago.

Total sales were up 23%. Comps were up 14%, including a ~9% uptick in transactions and a ~5% increase in average ticket. Retail comps jumped 11%. Salon comps rose 10%. E-commerce sales were up 71%. Operating margins expanded 60 basis points. EPS roared 41% higher year-over-year.

Has anything really changed since then? Not really. All of the secular trends that have propped up ULTA stock over the past several quarters remain in-tact. In fact, the "selfie generation" trend has actually gained momentum. Snapchat (SNAP) now has about 170 million

This article was written by

L&F Capital Management profile picture
L&F Capital Management, LLC, is a quantitative investment management group located in San Diego, California. Our multi-strategy investment approach comprises a mix of event-driven trades and long-term value investments, utilized together to maximize profit in both short and long term scenarios. We maintain consistency in portfolio mix through our long-term value holdings, but stress flexibility in portfolio mix from our daily event-driven trades. We believe this mix of flexibility and value generates both short and long term profits while reducing exposure to market volatility. L&F also shares various trade and investment opportunities through Seeking Alpha. For more information, visit www.lfcapitalmanagement.com.

Analyst’s Disclosure: I am/we are long ULTA, FB. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (3)

JPevzner profile picture
Excellent article, company looks superb! Buying Oct 20 calls!! Thanks for your contribution!!
RI$ING CAPITAL profile picture
Scooped up a few yesterday at $255.00
WayneCDN1876 profile picture
Thanks for the great article. It was refreshing to see a positive note on this stock, which just seems to have been crushed in a Costco like way along all the other retail, right after an amazing earnings report.
I hope it crawls back to 280 or so into August earnings.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.