ULTA BEAUTY INC (NASDAQ:ULTA) – A Strong Candidate for Quality Investors

ULTA BEAUTY INC (NASDAQ:ULTA) stands out as a compelling pick for quality investors, based on our Caviar Cruise screening methodology. The company demonstrates strong financial health, profitability, and efficient capital allocation, making it a potential long-term holding. Below, we examine why ULTA meets the criteria for quality investing.

Key Strengths of ULTA Beauty

• High Return on Invested Capital (ROIC): ULTA’s ROIC (excluding cash and goodwill) stands at 31.7%, well above the 15% threshold for quality stocks. This indicates the company generates substantial returns from its investments.
• Strong Profitability: The company’s EBIT growth over the past five years (11.7% CAGR) outpaces its revenue growth (4.8% CAGR), reflecting improving operational efficiency and pricing power.
• Healthy Cash Flow Conversion: ULTA’s five-year average Profit Quality (Free Cash Flow to Net Income) is 143.8%, meaning it converts net earnings into cash at an exceptional rate.
• Zero Debt Burden: With no outstanding debt, ULTA maintains a pristine balance sheet, reducing financial risk.
• Consistent Growth: Analysts expect future revenue growth to remain positive, reinforcing the company’s ability to expand in the beauty and wellness sector.

Fundamental Analysis Summary

Our fundamental report assigns ULTA a rating of 6 out of 10, with standout scores in profitability (8/10) and financial health (9/10). Key highlights include:

• Industry-Leading Margins: Operating margin of 13.7% and profit margin of 10.5% place ULTA in the top tier of specialty retail peers.
• Valuation: While not deeply undervalued, ULTA trades at a P/E ratio (18.6) below the S&P 500 average, making it reasonably priced for its growth prospects.
• Growth Outlook: Earnings per share are projected to grow at 8.2% annually, supported by steady revenue expansion.

For investors seeking high-quality businesses with durable competitive advantages, ULTA Beauty presents a strong case.

Our Caviar Cruise screener lists more quality stocks and is updated regularly. For a deeper dive, review the full ULTA fundamental report.

Disclaimer

This is not investing advice. The observations here are based on data available at the time of writing. Always conduct your own research before making investment decisions.