Shares of cosmetics retailer Ulta Beauty (ULTA 10.62%) popped on Friday after its financial results for the third quarter of 2024 came in above investors’ expectations. Expectations were quite low and so now investors are rethinking things. And that’s why Ulta Beauty stock was up about 9% as of 11:25 a.m. ET.
Ulta Beauty outperformed low expectations
When an investor as great as Warren Buffett sells your stock, it tends to kill any buzz the market might have otherwise had. Ulta Beauty’s same-store sales have stagnated in recent quarters, impacting revenue and profitability. And while investors don’t know for sure that Buffett was involved, his company Berkshire Hathaway sold most of its position in the cosmetics stock last quarter.
In Q3, Ulta Beauty’s same-store sales increased by almost 1%, which contributed to almost 2% growth in net sales. While that’s meager growth, it was better than expected. Moreover, it motivated management to raise the lower end of its full-year guidance.
Again, it’s not much but expectations were really low. And with Ulta Beauty beating expectations and increasing aspects of its financial guidance, professional analysts are mostly raising their price targets for Ulta Beauty stock today, which can certainly generate enthusiasm from their clients.
Can Ulta Beauty keep rising from here?
I disagreed with Berkshire’s decision to sell Ulta Beauty stock because I do believe it has plenty of long-term upside. As Q3 results show, Ulta Beauty’s business is stable and I expect that to continue for the foreseeable future. The business is solidly profitable, projecting a roughly 13% full-year operating margin. And management keeps boosting shareholder value by buying back shares.
Less than a month ago, Ulta Beauty stock traded at just 15 times earnings, which is quite cheap for a company with solid profitability and a declining share count. It’s a little more expensive now but I think investors can still buy and hold this one for the long term.
Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and Ulta Beauty. The Motley Fool has a disclosure policy.
