Ulta Beauty (NASDAQ:ULTA)

Dip-buyers may be tempted to buy ULTA stock because its price finally came down after riding high earlier this year. It’s likely not the worst trade you could make, but be prepared for slow growth as sticky inflation — and even retail theft, believe it or not — could hinder Ulta Beauty’s results for a while.

UTLA Stock Comes Down to an Acceptable Price Point

To be honest, I believe that Ulta Beauty stock never should have reached $550 in 2023’s first half. The pullback was healthy, as now the stock’s future gains can be more sustainable. Besides, the last thing any financial trader should be is a price chaser.

Currently, Ulta Beauty’s GAAP trailing 12-month (TTM) price-to-earnings (P/E) ratio is 17.05x, which is close to the sector median P/E ratio of 16.61x. In other words, there appears to be a decent value here, though perhaps not a screaming Buy.

At least, in theory, there should be some room for growth with a 17-ish P/E ratio. In terms of sales, Ulta Beauty has done okay but not spectacularly well. During 2023’s first quarter, the company reported 11.1% year-over-year revenue growth to $2.63 billion. This was roughly in line with analysts’ expectations – nothing to write home about, but a respectable result.

Meanwhile, Ulta Beauty’s Q1-2023 earnings per share (EPS) of $6.88 exceeded analysts’ consensus forecast of $6.82 per share. That’s a fairly decent beat, but there are other statistics to take note of, along with a problem that’s eating away at Ulta Beauty’s bottom line.

Theft is a Serious Problem for Ulta Beauty

Most people would never think of stealing cosmetics, but apparently, that’s happening, and it’s a major issue for Ulta Beauty. Indeed, Ulta Beauty CFO Scott Settersten has identified “shrink,” or loss due to theft or errors, as a significant factor impacting the company’s quarterly results.

How bad is the “shrink” problem? Put it this way: Ulta Beauty cited “higher inventory shrink” as a contributing factor to the company’s year-over-year gross profit decrease in Q1-2023. Furthermore, Settersten pointed to “shrink” as the main factor behind Ulta Beauty’s lower-revised operating margin outlook.

Specifically, Ulta Beauty changed its Fiscal Year 2023 operating margin outlook from 14.7% to 15% previously to 14.5% to 14.8% currently. Plus, here’s another unfortunate development: Ulta Beauty’s comparable-store sales growth decelerated rapidly, from 18% in the prior-year quarter to 9.3% in 2023’s first quarter.

Comparable-store sales growth is a crucial metric in the retail sales sector and is sometimes referred to as “comp” or “comps” in the business. It’s definitely not a positive sign that Ulta Beauty’s comparable-store sales growth was nearly cut in half. Unless the theft/”shrink” problem is reduced and Ulta Beauty starts to post more impressive results, it will be difficult to identify ULTA stock as a strong value play.

Is ULTA Stock a Buy, According to Analysts?

Turning to Wall Street, ULTA stock comes in as a Moderate Buy based on 15 Buys, seven Holds, and one Sell rating. The average Ulta Beauty stock price target is $546.39, implying 29% upside potential.

If you’re wondering which analyst you should follow if you want to buy and sell ULTA stock, the most accurate analyst covering the stock (on a one-year timeframe) is Rupesh Parikh of Oppenheimer, with an average return of 37.54% per rating and a 72% success rate. Click on the image below to learn more.

Conclusion: Should You Consider ULTA Stock?

Not every price dip in the stock market needs to be bought hand-over-fist. While Ulta Beauty stock is trading at a better price after its big dip, investors can seek out more compelling opportunities.

This doesn’t mean Ulta Beauty is a failing company; that’s not the case at all. The point is that ULTA stock may be worth considering for a small position, but it likely doesn’t need to be anyone’s core portfolio holding this year.