This Market-Beating Stock Is a Beautiful Buy Right Now

Beauty and cosmetics retailer Ulta Beauty (NASDAQ: ULTA)’s price action has been anything but pretty over the past six months. Slowing growth and slipping profit margins have caused the stock to falter; shares have fallen from nearly $600 to under $400 in just the past six months.

Although the stock had reasons for slipping, the stock market often gets overzealous. There’s a solid argument that Ulta Beauty’s selling has gone too far, and shares are poised to rebound strongly. Here is why Ulta Beauty is a beautiful buy for investors right now.

Why has the stock fallen so much?

Beauty and cosmetics are cultural staples, not just in America, but worldwide. Ulta Beauty is the largest cosmetics retailer in the United States, with 1,395 stores and an e-commerce store. It sells tens of thousands of products from hundreds of brands. Ulta has also become a full-fledged brand; the company engages with customers through social media and loyalty programs.

Ulta had just 449 stores in 2011. Steadily opening new stores has fueled relatively uninterrupted sales growth for years outside the pandemic, which hurt virtually any business with physical stores. Consistent, profitable growth has made Ulta Beauty a market-beater; the stock has outperformed the S&P 500 roughly 3-to-1 since the company’s IPO in 2007.

Consumers were flush with cash coming out of the pandemic, which boosted Ulta’s business. However, those tailwinds have faded. Sales growth has steadily slowed since peaking in 2021, while gross profit margins peaked in late 2022:

ULTA Gross Profit Margin Chart

Management has pointed to increased theft and lower-margin sales as the culprits behind margin pressures. That makes sense; consumer savings rates have fallen below pre-pandemic levels. Naturally, a retailer will struggle if shoppers have less money and are trading down to cheaper brands. As much as people may try to maintain their beauty regimen, cosmetics are ultimately a discretionary budget item.

It’s not all bad

The good news is that Ulta Beauty’s formula for success has worked for many years, and there isn’t much reason…

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