Ulta Beauty (ULTA) On Raised Guidance And Buybacks Has Investors Asking If It Is Undervalued
Ulta Beauty (ULTA) is back in focus after second quarter results and a higher full year outlook for sales and earnings. The company paired the guidance increase with a bigger share repurchase plan.
Despite the stronger second quarter, Ulta Beauty’s recent share price has been choppy, with the stock down about 4% on the day of the results. The year-to-date share price return is down 16.5%, while the 1-year total shareholder return is up 5% and the 3-year total shareholder return is 24.4%. This suggests longer-term holders have still seen gains, even as near-term momentum has cooled around the current US$517.50 level.
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Ulta Beauty looks like a solid operator, yet the stock has fallen this year even after a guidance lift and bigger buyback plan. The key issue now is how that strength lines up with today’s valuation.
Most Popular Narrative: 18% Undervalued
Ulta Beauty’s most followed valuation narrative points to a fair value of about $627 per share compared with the recent $517.50 close. That gap rests on a specific view of how earnings, margins, and the share count could evolve over the next few years.
The analysts have a consensus price target of $627.25 for Ulta Beauty based on their expectations of its future earnings growth, profit margins and other risk factors.
In order for you to agree with the analysts, you would need to believe that by 2029, revenues will be $14.9 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 8.3%.
Want to understand what underpins that higher valuation for Ulta Beauty? The narrative leans on steady revenue expansion, firmer profit margins, and fewer shares in the market. Curious how those moving parts combine to support a higher future earnings multiple? The full narrative lays out the exact assumptions that connect today’s price to that fair value range.
Result: Fair Value of $627.25 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, Ulta Beauty’s story could change if wage and store cost pressures squeeze margins, or if the loss of the Target partnership weighs more heavily than expected.
Find out about the key risks to this Ulta Beauty narrative.
Another View on Ulta Beauty’s Valuation
The analyst narrative suggests Ulta Beauty is about 18% undervalued around $517.50. A different lens tells a less generous story. Our DCF model values the stock at $321.63, which points to an overvalued picture instead. Which set of assumptions do you find more realistic for the next few years?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Ulta Beauty for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 44 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
With mixed signals across the Ulta Beauty narratives, this is a good moment to review the data yourself and move decisively. To see what has been getting investors positive about the company, take a closer look at its 4 key rewards.
Looking for more investment ideas beyond Ulta Beauty?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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