Ulta Beauty – Aging Gracefully? – Ulta Beauty, Inc. (NASDAQ:ULTA)

Thesis

Ulta Beauty, Inc.(NASDAQ: ULTA) delivered another positive quarter with both top and bottom lines beating estimates. Thanks to its performance, Ulta Beauty’s shares have surged 41.5% in the last year. However, their lofty stock price is at risk due to its recent and quick run up as well as a potential cash squeeze coming primarily due to the stock buyback program and the company’s aggressive growth plans.

Source: cnn.com

Trade Idea

I would stay on the slide lines on this stock in the short term. If you are bullish on the stock, I would wait for a pull back to 260 or lower. However, I suspect the stock can keep running in the type of overall market we are currently seeing. Shorting this stock via buying put options is expensive (e.g Sept 2017 280 puts are $7.50), there is very low volume, and the bid/ask spreads are too large for me to have any interest in the stock.

Technicals

The stock trading above both its 10 week and 40 week moving averages, which is bullish. However, these higher highs are coming on lower volume which tends to be bearish. The MACD is also showing a bullish trend as the moving averages are trending higher. RSI is also bullish.

Source: fidelity.com

Source: fidelity.com

Peer Comparison

Ulta continues to outperform its peers especially in Return on Equity (ROE). Price to Earnings (P/E) and Price to earnings growth (NYSE:PEG) ratios are among the highest in their peer group. Ultimately, these ratios are higher as they are outperforming their peers in revenue and EPS growth at 23.4% and 31.9%, respectively.

Source: fidelty.com

Source: fidelity.com

Source: fidelity.com

Solid 1Q17 Results

Results in 1Q17 point to execution of the company’s growth plans through merchandise retail, e-commerce sales, as well as continued progress at the company’s salons. During the first quarter, Ulta opened 18 new stores bringing their total stores to 990.

Ulta’s retail and salon business showed comps growth of 10.9% – this was due to a 6.2%…

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