Recently, Ulta Beauty Inc (ULTA, Financial) experienced a daily loss of 1.75%, contributing to a three-month decline of 27.52%. Despite these figures, the company maintains a robust Earnings Per Share (EPS) of 26.05. This analysis seeks to determine whether Ulta Beauty is significantly undervalued, as suggested by the GuruFocus Valuation metrics.
Company Introduction
Ulta Beauty Inc (ULTA, Financial), the largest specialized beauty retailer in the U.S., operates 1,385 stores and has a strategic partnership with Target. Founded in 1990 and based in Bolingbrook, Illinois, Ulta Beauty offers a diverse range of products including makeup, fragrances, skin care, and hair care products, alongside private-label items and merchandise from over 500 vendors. The company also provides various salon services across its locations. Currently, with a market cap of $18.80 billion and a stock price of $392.55, the GF Value estimates Ulta Beauty's fair intrinsic value at $583.28, indicating a potential undervaluation.
Understanding GF Value
The GF Value is a proprietary measure calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. For Ulta Beauty, the GF Value suggests that the stock is significantly undervalued, which could imply higher future returns relative to its current market performance.
Financial Strength Assessment
Investing in a company with robust financial health is crucial. Ulta Beauty's cash-to-debt ratio stands at 0.4, which, although modest, still positions it better than 52.48% of its industry peers. The overall financial strength of Ulta Beauty is rated 7 out of 10 by GuruFocus, indicating a fair financial status.
Profitability and Growth
Ulta Beauty has consistently demonstrated strong profitability, with a remarkable operating margin of 15.05%, ranking better than 89.56% of companies in the Retail - Cyclical industry. Additionally, the company's 3-year average revenue growth rate surpasses 87.45% of its industry counterparts, indicating robust growth prospects.
ROIC vs. WACC
An effective method to evaluate a company's profitability is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Ulta Beauty's ROIC of 32.32 significantly exceeds its WACC of 8.92, suggesting effective capital management and value creation for shareholders.
Conclusion
Ulta Beauty (ULTA, Financial) appears significantly undervalued based on its GF Value, with strong financial health and exceptional profitability metrics. For those interested in a deeper financial analysis, Ulta Beauty's 30-Year Financials provide extensive insights.
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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.
