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I often rummage through the Roster of Quality Companies for ideas for additions/replacements for my portfolio. For a year or more nothing would be in the Buy zone on my SSGs of the companies I found interesting or might be a replacement for something in my portfolio. Ulta Beauty may be an exception. Below is my analysis of ULTA. Attached at the bottom of this post are also a pdf of my SSG and an ITK file of the SSG.
Ulta Beauty is a specialty retailer. It has over 1000 locations spread over 48 states. It’s line of products include cosmetics, fragrances, hair care and skin care products. In addition its locations offer hair salon services. Founded in 1990, it went public in 2007. The judgement calls and the rationale are as follows:
EPS growth rate – 15%. ValueLine estimates the EPS growth at 21%. My estimate is based on the 5 year growth rate decreased for safety. Recent quarterly year to year growth was 31.7%. Trailing 4 quarters growth has been above 25% for the last 7 quarters. Analysts concensus 5 year growth is 19.3 % whileICLUBcentral’s Equity Research Service (ERS) gives a growth rate of 20%.
Sales Growth Rate – 15%. My estimate is conservative compared to other estimates. The recent quarterly sales growth rate was 17.4%. The trailing 4 quarters growth rate has been above 17% for 13 straight quarters. ERS gives an analysts estimate growth rate of 13.7 % for the next 2 years.
Projected High PE – The 10 year average high PE is 37.8. A graph from ERS shows the average PE ratio has increased slightly with the average of the most recent 6 years at 38.5. I chose a high PE of 30 anticipating a slight downward trend.
Projected Low PE – A similar analysis was done for the projected low PE, settling on 18. The 10 years average was 19.3 while the average of the most recent 6 years is 22.3.
Projected Low Price – Using trailing 12 months earnings of 9.61 and a projected low PE of 18 gives a projected low price of 173. I chose to use 163.00 as the estimated low price. This is approximately 30% below the current price. (30% is about the average loss in a bear market.)
My growth estimates and PE choices allow for slowing in its historical growth rate of almost 38% and some valuation contraction making them more conservative than ValueLine and ERS. Even so my analysis gives an Upside/Downside ratio of 6.4 to 1, solidly in the Buy range. Over the long-term there is concern Amazon could take a big bite out of Ulta’s sales. Ulta’s salon services are something that cannot be duplicated online. This may keep customers in the stores and while there add other purchases.
Ulta is currently the highest rated company on the StockCentral Roster of Quality Companies. I do own shares of ULTA in a personal account.
Russell Malley
 ULTA-R_Malley-2018816.ITK (5kb) downloaded 8 time(s). ULTA ssg.pdf (818kb) downloaded 13 time(s).
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 1 user thanked Pawche for this useful post.
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I owned it for a good while and made money as did our investment club. It grew amazingly fast...and who knew why. I mean, while the fundamentals were good, were they really that good? Then there were stories, I forget the details, about some fiscal shenanigans. I wish I could remember...so we got out, albeit with a nice profit. Sorry I can't be more specific. I suggest looking up the history. It was a good-stock; and maybe I was just a chicken.
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Rank: Administration
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The only item I could find so far was about charging customers more at check-out than the list price on the shelves. District attorneys in 2 California counties investigated complaints about this issue. ULTA settled the issue and agreed to pay $175K. The district attorneys stated ULTA cooperated and in their opinion the problem was store specific and caused by employee error. They gave a positive opinion on ULTA corporate mechanisms for preventing this problem.
I'll keep looking for other financial reporting issues, though.
Russell
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Rank: Administration
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I forgot to add - ULTA gained over 6% today.
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The SSG looked great, Value Line report looked good. A new store opened very close to me - I went in and notice a lot of product but very few people in there buying or using the hair salon area. That alone made me doubt the longer term prospects
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Rank: Administration
Posts: 248
Thanks: 3 times
Was thanked: 50 time(s) in 44 post(s)
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Observation of actual stores for retailers can give insight to the company's prospects. Thanks for sharing this.
Russell
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