ULTA BEAUTY INC (NASDAQ:ULTA) Passes the "Caviar Cruise" Quality Investing Screen

For investors aiming to create a durable, long-term portfolio, the ideas of quality investing present a useful structure. This method centers on finding companies with lasting competitive strengths, sound financial condition, and reliable earnings, businesses worth owning for years, or even generations. The "Caviar Cruise" stock screen puts this thinking into practice by selecting for firms with a record of solid revenue and profit increase, high returns on invested capital, good cash flow production, and low debt. One company that appears from this strict process is ULTA BEAUTY INC (NASDAQ:ULTA).

A Good History of Increase and Earnings

The Caviar Cruise method favors companies that have shown not only increase, but profitable increase. The screen asks for a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over the last five years. Importantly, it also requires that EBIT increase is faster than revenue increase, pointing to better operational effectiveness and possible pricing strength.

Ulta Beauty easily meets these minimum standards:

• Revenue Increase (5Y CAGR): 6.02%
• EBIT Increase (5Y CAGR): 11.68%

The reality that Ulta's EBIT increase is almost twice its revenue increase is a notable measure. It shows the company has ably expanded its operations, probably gaining from economies of scale and good cost control. This skill to turn additional sales into even higher profits is a sign of a quality business with a solid operational advantage.

Superior Returns on Capital and Financial Condition

Central to quality investing is the effective use of capital. A high Return on Invested Capital (ROIC) indicates that a company is producing sizable profits from the funds it puts back into the business. The Caviar Cruise screen establishes a high standard with an ROIC (leaving out cash, goodwill, and intangibles) over 15%. Ulta Beauty's ROIC of 27.05% is very high, putting it in the leading group of its industry and confirming its position as a very effective user of capital.

Financial durability is also key. The screen employs a Debt-to-Free Cash Flow (FCF) ratio below 5 to make sure a company can easily handle its debts. Ulta’s ratio of 0.53 is very good, showing it could in theory pay off all its debt in just over half a year using its present yearly free cash flow. This nearly debt-free financial position offers great room to handle economic changes, fund increase, and give capital back to shareholders.

Good Earnings and Cash Flow

Quality investors look for profits supported by actual cash. The Profit Quality measure, which weighs free cash flow against net income, evaluates this. A number close to or above 100% implies earnings are not only bookkeeping figures but are becoming usable cash. The screen searches for a 5-year average above 75%. Ulta Beauty's average Profit Quality of 143.84% is very high, meaning it has produced much more free cash flow than stated net income over this time. This solid cash production supports the company's financial might and supplies the means for future projects without needing outside funding.

Fundamental Analysis Overview

An examination of Ulta Beauty's detailed fundamental report supports the results from the Caviar Cruise screen. The company receives a good total score, with special force in profitability and financial condition. Its margins and returns on equity and assets are with the best in the specialty retail field. While valuation measures seem fair to somewhat high compared to the wider market, they are acceptable within its industry setting. The report mentions a small slowdown in projected increase rates, which is typical for established yet leading companies, but the core financial engine stays strong.

Is Ulta Beauty a "Buy-and-Hold" Possibility?

The Caviar Cruise screen is made to find companies that have the numerical characteristics quality investors value. Ulta Beauty's passing scores, good and profitable increase, top-level returns on capital, a very strong financial position, and excellent cash flow conversion, imply it has the financial base of a lasting business. For an investor, the following steps involve evaluating the non-numerical factors: the force of its omnichannel model, its brand relationships, its loyalty program, and its skill to stay important in the active beauty field. The numerical argument, however, is plainly persuasive.

Interested in reviewing other companies that meet the Caviar Cruise quality screen? You can locate the complete, current list of outcomes by going to the screen directly.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented should not be used as the sole basis for any investment decision. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions.