The Sale In Ulta Beauty Stock Is Over

If you were looking for a pandemic price on shares of Ulta Beauty (NASDAQ:ULTA), the beauty products chain, you missed it. At its May 28 opening price of $254 per share, Ulta stock has already more than doubled its pandemic low of $125. It seems to be rocketing toward its pre-pandemic high of $300.

The Sale In Ulta Stock Is Over Despite Investor Hype

Source: Jonathan Weiss /

The company is due to report earnings after the market closes May 28. While the consensus is for earnings of 61 cents per share on revenue of $1.25 billion, the “whisper number” is even higher, 64 cents.

With a market cap of $14 billion, Ulta is already selling for more than twice last year’s revenue, and 21 times last year’s earnings, which came to about $700 million on revenue of $7 billion.

Even if Ulta hits the mark on quarterly sales, they will be down more than 30% from a year ago. 

That Was Quick

What investors are betting is that the novel coronavirus pandemic caused a short, sharp downturn in Ulta’s numbers and that it will come back quickly.

An analysis by Placer.AI, the San Francisco store researcher, showed February traffic up 14.6%, year-over-year, before the pandemic caused stores to close in March. About 350 units are now re-opening for curbside pick-up. As many as 180 will be fully opened by the end of May, albeit with new rules meant to reduce the spread of Covid-19.

While the stores will be offering hair appointments, there will be marks on the floor to enforce social distancing, with both employees and customers wearing masks. Employees will also go through wellness checks each day.

Despite all this, some analysts have been pounding the table for Ulta stock, noting how far it was from its highs. They seem to have succeeded. Since hitting a May 8 low of $193, shares are up by one-third to the May 28 opening price of $254.

In addition to re-opening, Ulta should also get a boost from the bankruptcy of J.C. Penney (OTCMKTS:JCPNQ). Both Ulta and Penney were stocking products from Sephora, a unit of luxury conglomerate LVMH (OTCMKTS:LVMUY). Ulta stores are usually in strip malls and out-parcels, giving it a big advantage over both Penney and Macy’s (NYSE:M).

Getting Ahead of Ourselves

There remain analysts who are pulling back on the happy talk.

The average one-year price target for Ulta stock is $234, roughly $20 below where it is now trading. Even analysts with an overweight rating, like Wells Fargo, are still indicating it’s overpriced. The one-year moving average price on the stock is just $244, another indication it may be overbought.

Cornerstone Investments also insists that recovery won’t be a straight line. The chain faces competition from all-digital brands. Unemployment at Depression-era levels will reduce demand. Pricing will also be under pressure until the economy recovers, depressing margins.

The Bottom Line on Ulta Stock

A lot of stocks are getting ahead of themselves in the current market.

The injection of cash into investor pockets by the Federal Reserve, with interest rates near zero, has pushed money into the stock market. The recent moves on Ulta shares are almost perfectly aligned with those in the wider market.

The real disconnect is between market expectations and market reality. Unemployment claims continue to come in, with 2.1 million workers filing for benefits in the week before Memorial Day. The unemployment rate for May is expected to be nearly 20%. Yet investors think everyone’s going to be rushing to the makeup counter?

The recovery from Covid-19 won’t be quick or painless. If you expect that, you’re going to be disappointed. I’d avoid buying shares of Ulta until after earnings are fully digested.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in WFC.

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