Ulta Beauty Inc (ULTA, Financial) has recently seen a significant daily gain of 10.81%, accompanied by a three-month gain of 13.47%. With an Earnings Per Share (EPS) of 24.92, investors are prompted to consider whether the stock is modestly undervalued. This article delves into a valuation analysis to explore the current standing of Ulta Beauty's stock in the market. Read on for a detailed assessment of its intrinsic value.
Company Overview
Ulta Beauty Inc (ULTA, Financial), the largest specialized beauty retailer in the U.S., operates 1,355 stores and has a strategic partnership with Target. With a diverse product range including makeup, fragrances, skin care, and hair care, plus private-label offerings and salon services, Ulta Beauty has a significant presence. The company, founded in 1990 and headquartered in Bolingbrook, Illinois, boasts a substantial market cap of $22.90 billion. Comparing Ulta Beauty's current stock price of $472.03 to the GF Value of $567.24, we initiate a deep dive into its valuation.
Understanding GF Value
The GF Value is a unique metric that determines the intrinsic value of a stock. It is calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. The GF Value Line suggests the fair market value at which the stock should ideally trade. If a stock's price greatly exceeds the GF Value Line, it may be overvalued, whereas if it is significantly below, it could be undervalued, potentially offering higher future returns.
Based on GuruFocus' valuation method, Ulta Beauty's stock appears to be modestly undervalued. The GF Value estimates the fair value by integrating historical multiples, company growth adjustments, and future performance forecasts. With the stock priced at $472.03 per share, the indication is that Ulta Beauty could provide a higher long-term return than its business growth might suggest, due to its current valuation.
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Financial Strength Assessment
When considering an investment, the financial strength of a company is crucial to avoid potential capital loss. Ulta Beauty's cash-to-debt ratio of 0.21 positions it in a challenging spot within the Retail - Cyclical industry. However, with a financial strength rating of 6 out of 10 by GuruFocus, the company maintains a fair balance sheet, which is an important aspect of its overall financial health.
Profitability and Growth Insights
Investing in profitable companies, especially those with consistent long-term profitability, is generally less risky. Ulta Beauty has shown profitability for the past decade, with a solid operating margin of 15.31%, placing it well within its industry. With an impressive profitability rank of 10 out of 10, the company's financial performance is robust. Additionally, Ulta Beauty's growth is notable, with an average annual revenue increase of 15.7%, highlighting its potential for value creation.
ROIC vs. WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. Ulta Beauty's ROIC of 32.95 is significantly higher than its WACC of 9.52, indicating efficient value creation for shareholders.
Conclusive Valuation Thoughts
In summary, Ulta Beauty (ULTA, Financial) displays signs of being modestly undervalued. The company's financial condition is stable, and its profitability and growth prospects are strong, surpassing many competitors in the Retail - Cyclical industry. For a more in-depth look at Ulta Beauty's financials, interested investors can review the company'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.
