Ulta Beauty Inc (ULTA, Financial) experienced a daily loss of -3.77% and a three-month loss of -10.83%. Despite these declines, the company reported a robust Earnings Per Share (EPS) (EPS) of 24.6. This prompts the question: Is Ulta Beauty (ULTA) modestly undervalued? In the following analysis, we delve into the company's valuation, financial strength, profitability, and growth to provide an answer.
About Ulta Beauty Inc
With a total of 1,355 stores by the end of fiscal 2022 and a partnership with narrow-moat Target, Ulta Beauty is the leading specialized beauty retailer in the U.S. The company offers a wide range of products including makeup, fragrances, skin care, and hair care products. Ulta Beauty also provides salon services in all its stores. The company, founded in 1990 and headquartered in Bolingbrook, Illinois, has a market cap of $21.50 billion and a stock price of $431.01 per share.
Understanding the GF Value
The GF Value is an exclusive measure that represents the current intrinsic value of a stock. This value is calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should ideally trade at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus' valuation method, Ulta Beauty (ULTA, Financial) appears to be modestly undervalued. Given this, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of Ulta Beauty
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. Ulta Beauty has a cash-to-debt ratio of 0.34, which is worse than 57.97% of 1092 companies in the Retail - Cyclical industry. GuruFocus ranks Ulta Beauty's overall financial strength at 6 out of 10, indicating fair financial strength.
Profitability and Growth of Ulta Beauty
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Ulta Beauty has been profitable 10 over the past 10 years. The company had a revenue of $10.50 billion and an Earnings Per Share (EPS) of $24.6 over the past twelve months. Its operating margin is 15.65%, which ranks better than 88.47% of 1093 companies in the Retail - Cyclical industry. GuruFocus ranks Ulta Beauty's profitability at 10 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Ulta Beauty is 15.7%, which ranks better than 76.99% of 1043 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 20.8%, which ranks better than 70.73% of 902 companies in the same industry.
ROIC vs WACC Comparison
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Ulta Beauty's ROIC was 34.09, while its WACC came in at 9.99.
Conclusion
Overall, Ulta Beauty (ULTA, Financial) stock appears to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 70.73% of 902 companies in the Retail - Cyclical industry. To learn more about Ulta Beauty stock, you can check out its 30-Year Financials here.
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