Ulta Beauty Inc (ULTA, Financial) has recently experienced a notable daily loss of -13.33%, contributing to a three-month decline of -4.34%. Despite these figures, the company's Earnings Per Share (EPS) stand at a robust 26.05. The pressing question that arises for investors is whether Ulta Beauty's stock is modestly undervalued. To ascertain this, we will delve into a comprehensive valuation analysis that aims to shed light on the true value of Ulta Beauty (ULTA).
Company Introduction
Ulta Beauty Inc (ULTA, Financial) is the largest specialized beauty retailer in the U.S., with a formidable presence of 1,385 stores and a strategic partnership with Target. Founded in 1990 and headquartered in Bolingbrook, Illinois, Ulta Beauty offers a diverse range of products, including makeup, fragrances, skin care, and hair care, alongside private-label items and merchandise from over 500 vendors. The company also provides salon services across all its stores. With a current stock price of $450.4 and a market cap of $21.70 billion, we compare this to the GF Value of $579.17 to evaluate if the stock is trading at a fair value.
Summarize GF Value
The GF Value is a unique measure that determines the intrinsic value of a stock, considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a benchmark for the stock's fair trading value. When a stock's price significantly surpasses the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if the price is considerably below this line, the stock might offer higher future returns.
At the current price of $450.4 per share and with a market cap of $21.70 billion, Ulta Beauty (ULTA, Financial) appears modestly undervalued according to the GF Value. This suggests that the stock may provide higher long-term returns relative to its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Ulta Beauty's cash-to-debt ratio of 0.4 places it in a challenging position within the Retail - Cyclical industry. Despite this, GuruFocus ranks Ulta Beauty's financial strength as 7 out of 10, which indicates a fair balance sheet.
Profitability and Growth
Companies that consistently demonstrate profitability, like Ulta Beauty, which has been profitable for 10 of the past 10 years, tend to be less risky investments. With an impressive operating margin of 15.05%, Ulta Beauty outperforms 88.53% of its peers in the Retail - Cyclical industry. Moreover, the company's growth is a critical valuation factor. The 3-year average annual revenue growth rate of 27.6% and the EBITDA growth rate of 49.1% both rank higher than the majority of competitors in the industry.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another method to assess profitability. Ulta Beauty's ROIC of 32.32 is significantly higher than its WACC of 8.53, indicating efficient capital utilization.
Conclusion
In conclusion, Ulta Beauty (ULTA, Financial) presents signs of being modestly undervalued. The company maintains a fair financial condition and exhibits strong profitability. Its growth outpaces 88.09% of companies in the Retail - Cyclical industry. For a deeper understanding of Ulta Beauty's financials, investors can explore the company's 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
