Is Ulta Stock a Buy Heading Into 2023?

The persistently high inflation has plagued consumer sentiment, affecting demand across various industries. The beauty industry has not been affected much by higher prices as consumers have not compromised on buying beauty products despite price increases. According to Euromonitor International, the global beauty sector is expected to reach $546 billion in 2022, up from $529 billion in 2021.

Ulta Beauty, Inc. (ULTA) announced higher-than-expected EPS and revenue in the third quarter. Its EPS was 29.3% higher than the consensus EPS estimate, and its revenue beat analyst estimates by 5.8%.

Post its solid third-quarter results, ULTA’s CEO Dave Kimbell said, “Amidst a challenging macro environment, the Ulta Beauty team delivered yet another outstanding quarter, with strong top and bottom-line results and growth across all major categories and channels.”

“Our third quarter results reflect the sustained resilience of the beauty category and the strong emotional connection and loyalty we have cultivated with our guests. I am confident our business model, which offers unmatched breadth, value, and convenience, is even more relevant today and unlocks opportunities to further delight guests as we continue to lead the beauty category,” he added.

ULTA’s net new store openings came in at 18, rising 200% from the year-ago period. Its comparable sales rose 14.6% year-over-year.

CEO Kimbell said, “While it’s hard to know with certainty if we are starting to see consumers trade down – as the only beauty retailer that offers a wide variety of prices from entry-level mass to high-end luxury and everything in between. Ulta Beauty is uniquely positioned to capture any consumer shifts within price points in the beauty category.”

The company upgraded its outlook for fiscal 2023. ULTA now expects its net sales to be between $9.95 billion to $10 billion, compared to the previously expected $9.65 billion to $9.75 billion. Moreover, it raised the EPS estimate from $20.70-$21.20 to $22.60-$22.90.

ULTA’s stock has gained 12.5% in price year-to-date and 14.9% over the past year to close the last trading session at $464.

Here's what could influence ULTA’s performance in the upcoming months.

Robust Financials

ULTA’s net sales increased 17.2% year-over-year to $2.34 billion for the third quarter ended October 29, 2022. The company’s gross profit increased 22% year-over-year to $962.82 million. Its net income increased 27.5% year-over-year to $274.58 million. Also, its EPS came in at $5.34, representing an increase of 35.5% year-over-year.

Revenue and EPS Growth Estimates

Analysts expect ULTA’s EPS for fiscal 2023 and 2024 to increase 27.1% and 5.2% year-over-year to $22.86 and $24.04, respectively. In addition, its revenue for fiscal 2023 and 2024 is expected to grow 15.6% and 7.2% year-over-year to $9.98 billion and $10.70 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, ULTA’s 2.53x is 128.2% higher than the 1.11x industry average. Likewise, its 2.37x forward P/S is 184.8% higher than the 0.83x industry average. Its 13.99x EV/EBITDA is 58.1% higher than the 8.85x industry average.

Higher-than-industry Profitability

In terms of the trailing-12-month gross profit margin, ULTA’s 43.75% is 23.4% higher than the 35.46% industry average. Likewise, its 18.61% trailing-12-month EBITDA margin is 65.8% higher than the industry average of 11.23%. Furthermore, the stock’s 16.09% trailing-12-month EBIT margin is 102.2% higher than the industry average of 7.96%.

POWR Ratings Show Promise

ULTA has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. ULTA has a B grade for Sentiment, consistent with favorable analyst estimates.

It has an A grade for Quality, in sync with its high profitability.

ULTA is ranked #13 out of 46 stocks in the Specialty Retailers industry. Click here to access ULTA’s Growth, Value, Momentum, and Sentiment ratings.

Bottom Line

ULTA is trading above its 50-day and 200-day moving averages of $436.15 and $408.17, indicating an uptrend. Despite the uncertain macroeconomic environment, the company beat EPS and revenue estimates by a significant margin. Moreover, ULTA has raised its outlook for fiscal 2023, indicating business resilience even amid a slowing economy.

Given its robust financials, high profitability, and favorable analyst estimates, it could be wise to buy the stock now.

How Does Ulta Beauty, Inc. (ULTA) Stack up Against Its Peers?

ULTA has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Specialty Retailers industry with an A (Strong Buy) or B (Buy) rating: The ODP Corporation (ODP), Murphy USA Inc. (MUSA), and TravelCenters of America Inc. (TA).

ULTA shares were unchanged in premarket trading Wednesday. Year-to-date, ULTA has gained 12.53%, versus a -18.24% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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