Is It Time to Take Profits on Ulta Beauty Stock Ahead of Earnings?

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ULTA stock - Is It Time to Take Profits on Ulta Beauty Stock Ahead of Earnings?

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Year-to-date, Ulta Beauty (NASDAQ:ULTA) stock is up over 35%. Recently, ULTA stock’s relatively strong performance has been based on its healthy fundamentals and I am a firm believer in the long-term story of the company. But, on a short-term basis, it would be timely to take your profits before the upcoming earnings call.

ULTA will report earnings on Dec. 6, after the close of the market. You may want to consider buying into ULTA stock after it has reported.

Here is why:

Short-Term Risks for Ulta Beauty Stock

Risks in Revenue Growth: Wall Street has analyzed the impact of Amazon (NASDAQ:AMZN) on the decline of malls and brick-and-mortar stores in depth and many investors have become skeptical of the sustained revenue and margin growth in retail stocks. Ulta Beauty products cater to both low-end and high-end customers.

Low-end consumers tend to regard cheaper beauty products as a commodity and since these customers are price-sensitive, they tend to change brands quickly. In case of an economic downturn leading to decreased spending by the consumer, increasingly fierce competition in the low-end beauty products space in retail may limit ULTA’s revenue growth for several quarters.

Shorter-Term Technical Analysis: The ULTA stock price has increased almost 45% over the past 12 months. On Mar. 2, it saw a 52-week low of $191.70 and on Nov. 14, a 52-week high of $321.73. ULTA’s momentum indicators, which describe the speed at which prices move over a given period, are currently in an extremely overbought territory. Although these indicators can stay overbought for quite a long time, I believe short-term profit taking is around the corner.

If you believe in the bull case for ULTA stock, you might consider waiting for a better time to go long, such as around the mid-$250’s. Any weakness in the upcoming earnings report is likely to push the stock toward or even below $250. Expect nearer-term trading in Ulta Beauty to be choppy at best.

Long-term Strength of ULTA Stock

Leadership Position in a “Recession-Proof” Industry: Since the opening of its first store in 1990, Ulta Beauty has become the largest beauty retailer in the U.S. Wall Street tends to regard sectoral leaders as stable and profitable long-term investments. With a market cap of over $18 billion, it would be safe to assume that any short-term weakness in Ulta Beauty stock is likely to be short-lived.

During previous economic downturns, the cosmetics industry has shown resiliency as customers have not stopped paying for beauty products, even when they are worried about the economy. Each ULTA store offers retail products as well as a full-service salon with a popular loyalty program, giving consumers the chance to “pamper” themselves when other factors in their lives may wear them down.

Management: ULTA’s management has not been shy to take bold steps to help the company increase revenue and growth — a trend we can expect to continue. For example in August, Ulta and Kylie Cosmetics, owned by Kylie Jenner, announced their partnership — a move favored by the investment community.

In March 2018, Ulta Beauty’s board of directors announced a new round of investor-friendly share repurchases, totaling $625 million. Since 2014, the leadership behind ULTA stock has bought nearly $1 billion of its shares back, proving its belief in the company and its offerings.

Ulta Beauty’s management is expected to move the company forward into long-term opportunities via further omni-channel growth, both in the U.S. and internationally, possibly starting with Canada.

The Bottom Line on ULTA Stock

Ulta Beauty stock has a strong story and the company has a clean balance sheet, thus it remains a long-term growth play on a fundamental basis. However, there might weakness in the ULTA stock price in the near term that potential ULTA investors should anticipate.

As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.

Tezcan Gecgil, PhD, began contributing to InvestorPlace in 2018. She brings over 20 years of experience in the U.S. and U.K. and has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Publicly, she has contributed to investing.com and the U.K. website of The Motley Fool.


Article printed from InvestorPlace Media, https://investorplace.com/2018/11/is-it-time-to-take-profits-on-ulta-beauty-stock-ahead-of-earnings/.

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