Ulta Beauty Inc (ULTA, Financial) has recently experienced a daily loss of 2.72% and a 3-month decline of 11.95%, yet its Earnings Per Share (EPS) stands at a robust 26.05. These figures prompt investors to question whether the stock is modestly undervalued. The following analysis delves into Ulta Beauty's valuation to provide an answer, guiding readers through a comprehensive financial assessment.
Company Overview
Ulta Beauty Inc (ULTA, Financial), founded in 1990 and headquartered in Bolingbrook, Illinois, has grown to become the largest specialized beauty retailer in the U.S. With 1,385 stores and a partnership with Target, the company offers a diverse range of products, including makeup, fragrances, skin care, and hair care, alongside salon services. Despite a current share price of $413.55, the GF Value estimates Ulta Beauty's fair value at $580.23, suggesting the stock may be modestly undervalued.
Understanding GF Value
The GF Value is a unique valuation metric that suggests the intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. According to this measure, Ulta Beauty (ULTA, Financial) appears to be modestly undervalued. This valuation implies that the stock's long-term return could potentially outpace its business growth, offering an attractive opportunity for investors.
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Financial Strength
Investing in companies with solid financial strength is crucial to minimize the risk of permanent loss. Ulta Beauty's cash-to-debt ratio of 0.4, though only fair, places it in a better position than over half of its peers in the Retail - Cyclical industry. The company's financial strength rating of 6 out of 10 reflects its stable financial condition.
Profitability and Growth
Ulta Beauty has maintained a decade of profitability, with impressive operating margins that surpass 88.7% of industry competitors. This consistent profitability, coupled with a strong profitability rank of 10 out of 10, highlights the company's robust financial health. Furthermore, Ulta Beauty's notable revenue growth rates exceed those of the majority of its industry peers, underscoring its potential for long-term value creation.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its profitability. Ulta Beauty's ROIC of 32.32 is significantly higher than its WACC of 8.72, indicating efficient capital utilization and strong potential for investor returns.
Conclusion
In conclusion, Ulta Beauty (ULTA, Financial) presents as modestly undervalued, with a stable financial condition and strong profitability. The company's growth outperforms a significant portion of the Retail - Cyclical industry. For a more detailed financial analysis, investors can explore Ulta Beauty's 30-Year Financials here.
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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.
