Why Warren Buffett Bought ULTA Beauty Stock!
Summary
TLDRInvestor 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
- π Warren Buffett recently bought 690,000 shares of Ulta Beauty, signaling confidence in the company despite its stock price decline.
- π 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.
- π‘ 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.
- πΈ 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.
- ποΈ Ulta Beauty offers both products and services, which gives it a competitive edge against online retailers like Amazon.
- π The company has a loyal customer base, with over 95% of purchases coming from loyalty or reward members.
- πΌ Ulta Beauty has a venture capital fund, Prisma Ventures, which invests in early-stage companies focusing on beauty and AI innovations.
- π Despite market fears, Ulta Beauty has not reported a decline in revenues and continues to post increased guidance and revenues.
- π The stock's decline is attributed to investor expectations of bad earnings due to a potential recession, rather than actual poor performance.
- πΉ The company's free cash flow yield is around 7%, indicating a potentially undervalued stock with a strong cash-generating capability.
- π 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.
Outlines
π Warren Buffett's Ulta Beauty Investment
In this paragraph, the speaker discusses Warren Buffett's recent purchase of 690,000 shares of Ulta Beauty, despite the stock's decline from its previous highs. The speaker highlights the stock's current valuation, noting its low price-to-earnings ratio, lack of debt, and strong return on invested capital. They also mention the company's continued revenue growth and positive guidance, suggesting that the market's pessimism may be overblown. The speaker believes Ulta Beauty is undervalued and remains a buy, even after Buffett's investment, which has caused a 12% increase in the stock price after hours.
π‘ Ulta Beauty's Financial Strengths and Future Prospects
The second paragraph delves into Ulta Beauty's financial health, emphasizing its strong free cash flow yield, no debt, and substantial cash reserves. The speaker also discusses the company's venture capital fund, Prisma Ventures, which invests in beauty-related innovation, particularly AI. They argue that despite concerns of a recession affecting the company's performance, Ulta Beauty's fundamentals remain solid, with a history of revenue and earnings per share growth. The speaker projects modest revenue growth and a potential return to higher valuation multiples once recession fears subside. They conclude by cautioning that investment should be based on individual research and belief in a company's fundamentals, rather than solely on the actions of high-profile investors like Warren Buffett.
Mindmap
Keywords
π‘Warren Buffett
π‘Ulta Beauty
π‘Stock
π‘After Hours Trading
π‘Undervalued
π‘Recession
π‘Revenue Growth
π‘Free Cash Flow (FCF)
π‘Debt
π‘Multiple Expansion
π‘Investment Thesis
Highlights
Warren Buffett has purchased 690,000 shares of Ulta Beauty stock, which is a notable investment despite being a small portion of his portfolio.
The investment has led to a 12% increase in Ulta Beauty's stock price after Buffett's position was disclosed.
The speaker believes Ulta Beauty's stock is still undervalued and represents a buying opportunity.
Ulta Beauty's stock is down 32% on the year, despite no decline in revenues and continued revenue growth.
The market's negative reaction is attributed to recession fears and anticipated bad earnings, rather than actual performance.
Ulta Beauty offers both beauty products and services, which helps them compete with 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 in the beauty and AI sectors.
The company's financial health is strong, with $524 million in cash, no debt, and a 7% free cash flow yield.
Despite market concerns, the company continues to post positive revenue growth and has not yet reported a decline.
The speaker doubts that Ulta Beauty will revise their earnings per share estimate lower due to their strong balance sheet.
The stock is trading at 14.2 times earnings after a 12% increase, which is considered a good value.
Historical average earnings for Ulta Beauty were 25 times, with a high of 42 times, making the current valuation attractive.
The company's revenue growth is expected to be around 3% for the fiscal year 2025, based on guidance.
Ulta Beauty is expanding into Mexico, which could potentially boost revenue growth.
The speaker expects an annual return of around 12% on the stock, even in a worst-case scenario, excluding multiple expansion.
The stock's current PE ratio is around 14 times, which is low compared to historical averages and could expand post-recession.
The speaker emphasizes that investment decisions should be based on research and belief in a company, not solely on Buffett's actions.
Transcripts
Warren Buffett bought Ulta beauty stock
as of his latest 13 app filing he did
buy 690,000 shares maybe it's not much
for his hundreds of millions of dollar
portfolio but it's very encouraging as
this is a stock I talked about a lot on
the channel and it's one of my worst
calls ever like I talk about it and it
keeps going down and it keeps going down
I talked about it when it was like 430
or 420 and now it's tring at 330 the
stock is up 12% in the after hours to
360 9 after Warren Buffett disclosed his
position I'm not sure if this is going
to be sustainable or not but I
personally believe the stock is still
cheap it's still undervalued I se the
stock is still a buy so if you're
thinking of maybe you know taking warm
Buffett's idea and following him maybe I
don't think it's late I don't think it's
a bad idea at all I'm going to give you
a quick update and tell you why I still
believe in the company and what do I
think about it in general all right now
for Ulta beauty yes now it's up around
12% in the after hours but the stock is
still down 32% on the year just m
massive mind-blowing 38% return on vest
Capital 12 times earnings and no debt
and the stock keeps going down not
because they reported bad earnings but
because investors are expecting bad
earnings because people believe we're
going to have a recession the company
has yet to decline in revenues they're
still posting increase in guidance
increase in revenues but the market
doesn't like it and they believe the
market believes it's going to report bad
earnings and it hasn't even reported yet
so a lot of that stuff in my opinion
it's priced in as long as it doesn't
disappoint in a major way I think is a
lot of that stuff is priced in the stock
or the company a lot of you are familiar
with it they sell beauty products and
stores online but they also have
services like you know a lot of people
go there get their hair done and other
things a lot of Ulta beauty does have
these stuff and this is mainly how they
somehow compete with Amazon cuz I know
you could buy a lot of the makeup stuff
and Hair Care stuff on Amazon a lot of
people still choose to go there maybe
they have their hair stylist over there
and they do both things you really can't
do your hair online and a lot of people
goes there and this is one of their
advantage and they do have some kind of
a cult following where a lot of the
people that go there they just keep
going there they love it over 95% of
their purchases are from like you know
loyalty or reward members and people
love to collect points and then get gift
cards or whatever they get and some I
forget to mention on my YouTube videos
is they have a fund it's like a venture
capital fund around I believe 300
million and it's called Prisma Ventures
you could look it up Prisma Ventures and
they do invest in early stage companies
that do a lot of innovation within
Beauty mainly a lot of stuff in AI like
they have this Precision lash it's like
a robot that does lashes and other kind
of AI stuff you know I always joke how
the CEO pretty much never talks about it
on the call and if he mentioned AI a
little bit more especially a few months
ago maybe the stock would be sitting at
$600 but they do have a lot of different
Investments and a lot of them could
potentially play out again this is not a
dying company if you look at the start
you believe it's a dying company but
it's not a dying company at all the
company has been increasing revenue and
steadily earnings per share more than
double from 2019 and they've been
increasing it except Co of course and
things have been going very well for the
company in terms of the last quarter the
company is still growing again it's only
1.6% grow in terms of comparable sales
although they're comparing to a peak
period of 2023 and they're still growing
it's not here the recession is not here
yet maybe it's coming maybe things are
slowing down yes but so far a lot of
retailers have been declining in
revenues and in comparable sales and
Ulta is still putting up positive
numbers yet the stock is going down and
they did revise guidance a little bit
lower but they're still expecting 2 to
3% grow again no declines is still
growing earnings per share slightly
lower and and things are still fine so
flattish to positive and the stock is
still going down because of recession
fears and investors believe they're
going to revise guidance down again and
we're going to have a recession and
maybe this is true but I highly doubt
they're going to revise down the
earnings per share estimate again
because they likely been buying back so
much stock at these prices the company
has an amazing balance sheet they have
$524 million of cash which which is high
relative to the market cap and they have
no debt no debt at all they can borrow
even money and do a lot of buy bags or
they have the free cash flow the free
cash flow yeld right now is around 7% 7%
free cash flow yield guys and they have
no debts they have no dividend so I'm
sure they bought back a lot of stock and
I highly doubt they're going to revise
the EPS estimate lower maybe comparable
sales a little bit and even now I doubt
it somehow you know I just doubt it I
just don't saying it's going to happen
but but it's possible if you look at
everything else in terms of Gap earnings
I did say the stock is trading at 12
times earnings and this is true but the
stock is up 12% in after hours so
adjusted to the 12% increase the stock
right now is trading around 14.2 times
earnings and 14.2 times earnings is not
expensive at all on on historical
average historical average was 25 times
it traded as high as 42 times and now
it's trading around 14.2 times so around
here and if you look at it historically
this has been an amazing time to be
buying Ulta Bey stock and it's not
expensive at all 14 times is not
expensive around 6 and a half% free cash
yield for a company with no debt that's
still growing and maybe if they decline
this year next year is going to be
easier to beat on comparable sales and
it's going to be much much better and
War Buffett did open a position but in
terms of how I think about the returns
of the stock you know I'm looking at in
terms of Revenue growth Revenue growth
they used to grow revenues 20 21% before
Co after Co they grew 40% 18% 10% now
this is fiscal year 2025 so we're in
2025 even though it's in 2024 so you
have to look at the 2025 year for 2025
expected around 3% based on their
guidance and from there it's like 5 to
6% and it could be a little bit faster
because now the company is expanding
into Mexico through a joint venture
partner so maybe Mexico is going to
bring in a lot of Revenue grow as a lot
of people in Mexico are likely familiar
from Ulta Beauty in the United States
that could be huge for them but even if
that doesn't happen and it wasn't this
successful I could easily see you know
6% Revenue grow so if we're getting 6%
Revenue grow and 6 and a half% free
Capal yield I would say this is around
the 12% annual return on the stock and
this is like the worst case scenario to
me and the company still has no debt and
this is excluding a multiple expansion
as I said the PE right now is around 14
times earnings now I wouldn't be shocked
after this whole recession drama is over
if Ulta doesn't go back to you know 15
16 17 times earnings I wouldn't be
shocked last year the same thing
happened and I owned the stock I bought
it at 14 times earnings the stock went
to like 20 times 21 times earning within
four months the stock was up like 40% in
4 months or something crazy and it came
back down so after the recession fears
are over and we stop talking about that
stuff next year I wouldn't be surprised
if the stock goes back to 17 times 18
times earnings that's what I personally
think so for me personally the stock is
a buy because the fundamentals are right
not because waren Buffett bought it you
know I just want to give a quick
disclaimer that if Buffett buys a stock
it doesn't mean it's going to go up I
mean look at Paramount Paramount is down
31% he took a loss on Paramount you know
he took a loss on airlines before so we
all make mistakes and you shouldn't buy
a stock because Buffet bought it you
should buy a stock because you did your
research and because you believe in a
company and this is all I have to say
you know it was a financial advice just
my opinion thank you guys for watching I
hope you enjoyed it if you did please
press a like button and maybe consider
subscribing so I'll talk to you in
another video
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