Why Warren Buffett Bought ULTA Beauty Stock!

Summary

Investor Warren Buffett's recent purchase of 690,000 shares in Ulta Beauty has sparked renewed interest in the company, despite its stock price decline due to recession fears. Despite its current 12% after-hours surge, the stock remains undervalued with a 38% return on equity, no debt, and a strong loyalty program. The company's venture capital fund, Prisma Ventures, and its steady revenue and earnings growth suggest a resilient business poised for a rebound, potentially offering investors a compelling buying opportunity.

Takeaways

• 📈 Warren Buffett recently bought 690,000 shares of Ulta Beauty, signaling confidence in the company despite its stock price decline.
• 📉 The stock has been underperforming, with the speaker mentioning it was discussed when at $430 and now trading around $330, reflecting market concerns over a recession.
• 💡 After Buffett's investment was disclosed, Ulta Beauty's stock rose 12% in after-hours trading, suggesting a potential positive market reaction to the news.
• 💸 The company has strong financials with a 38% return on invested capital, 12 times earnings, no debt, and a significant cash position of $524 million.
• 🛍️ Ulta Beauty offers both products and services, which gives it a competitive edge against online retailers like Amazon.
• 🌐 The company has a loyal customer base, with over 95% of purchases coming from loyalty or reward members.
• 💼 Ulta Beauty has a venture capital fund, Prisma Ventures, which invests in early-stage companies focusing on beauty and AI innovations.
• 📊 Despite market fears, Ulta Beauty has not reported a decline in revenues and continues to post increased guidance and revenues.
• 📉 The stock's decline is attributed to investor expectations of bad earnings due to a potential recession, rather than actual poor performance.
• 💹 The company's free cash flow yield is around 7%, indicating a potentially undervalued stock with a strong cash-generating capability.
• 🚀 The speaker believes that the stock is still a buy, with a historical average P/E of 25 times, compared to the current 14.2 times after the stock's rise.

Q & A

What significant action did Warren Buffett take regarding Ulta Beauty stock?

Warren Buffett bought 690,000 shares of Ulta Beauty stock, as disclosed in his latest 13F filing.

How has Ulta Beauty's stock performance been historically according to the script?

Historically, Ulta Beauty's stock has traded at an average P/E ratio of 25 times earnings, and as high as 42 times, making the current P/E ratio of around 14.2 times earnings seem undervalued.

What is the current situation of Ulta Beauty's stock price after Warren Buffett's investment was disclosed?

The stock price of Ulta Beauty went up by 12% in after-hours trading to $360.9 after Buffett's investment was disclosed.

What is the current financial health of Ulta Beauty according to the script?

Ulta Beauty has a strong financial position with no debt, a 38% return on invested capital, and a market price significantly lower than its historical valuations.

Why has Ulta Beauty's stock been declining despite positive earnings?

The stock has been declining due to investor expectations of a recession and the belief that the company will report bad earnings in the future, even though the company has not yet reported a decline in revenues.

What services does Ulta Beauty offer that differentiates it from online retailers like Amazon?

Ulta Beauty offers not only beauty products but also services such as hair styling, which attracts customers to visit their physical stores, giving them a competitive edge over online retailers.

What is Prisma Ventures and how is it related to Ulta Beauty?

Prisma Ventures is a venture capital fund of about 300 million dollars associated with Ulta Beauty, which invests in early-stage companies, particularly those innovating within the beauty industry and utilizing AI technology.

How has Ulta Beauty's revenue and earnings per share (EPS) been performing recently?

Despite the stock's decline, Ulta Beauty has been increasing its revenue and EPS, with a steady growth over the years and a recent slight increase in comparable sales.

What is the current free cash flow yield of Ulta Beauty and what does it indicate about the company?

The current free cash flow yield of Ulta Beauty is around 7%, which is high considering the company has no debt and is still growing, indicating a potentially good investment opportunity.

What is the script's perspective on the future of Ulta Beauty's stock price?

The script suggests that the stock is undervalued and believes that it could see a return to higher P/E ratios once recession fears subside, potentially leading to significant returns for investors.

What advice does the script give regarding investing in Ulta Beauty's stock?

The script advises that investors should not buy the stock solely because Warren Buffett has invested, but rather because they have done their research and believe in the company's fundamentals.