My favorite stocks are the ones that grow at solid clips, have strong franchises and boast good fundamentals to keep them moving higher over time. Ulta Beauty Inc (NASDAQ:ULTA) fits this criteria nicely, and it’s why I think we’ll see it rally soon despite its recent choppy trading. Before I explain why, let me give you a quick recap of what the company does.
Ulta Beauty is the largest beauty retailer in the United States, selling cosmetics, fragrances, bath and skincare products and hair care. Each location also houses a full service salon. The company operates 990 stores in 28 states, with 90% outside of malls, which therefore limits its exposure to declining traffic.
Management believes there is potential to grow their store base to 1,400-1,700, giving the company significant room for expansion. In addition, the beauty industry is fragmented, and since ULTA only has 4% of market share it has ample opportunity to take share from competitors.
The stock initially fell under pressure due to concerns about discounting by department stores in cosmetics. There were also growing doubts that meaningful tax reform will pass, which had previously benefited the shares.