Both top investors saw an opportunity for Ulta’s stock to plummet.
There may be no greater investor in history than Warren Buffett. His conglomerate, Berkshire Hathaway (BRK.A) (BRK.B -0.82%), nearly doubled the S&P 500’s annual return over nearly 60 years. While this may sound impressive at first glance, the actual results are even greater. Thanks to the power of compound growth. From 1964 to 2023, the stock returned an overall return of 4,384,748%, completely beating the overall market return of 31,223%.
To be clear, a $1,000 investment in Berkshire Hathaway in 1964 would be worth more than $43 million today, while a similar investment in the S&P 500 would be worth about $312,000. I don’t know. It’s no wonder so many investors respect Buffett as a legend. And it’s no wonder so many people pay attention to his investment moves, which are revealed quarterly through Berkshire Hathaway’s 13-F filings with the Securities and Exchange Commission.
As Buffett and his aides are selective about the stocks they buy, many investors were surprised to find that one of the two new companies added in the second quarter was Ulta Beauty (ULTA 1.67%). noticed. Berkshire Hathaway added 690,106 shares of battered cosmetics stocks to its portfolio.
In many ways, Ulta seems like a typical Buffett buyer, but he wasn’t the only billionaire to buy up stocks. Ken Griffin runs Citadel Advisors, the world’s most successful hedge fund based on total returns. The company has held a position in Alta since 2010, adding 95,821 shares of the stock to its portfolio in the last quarter.
So should you follow Buffett and Griffin into Ulta now?
Image source: Getty Images.
Why a billionaire would buy Ulta
Ulta has been a great performer in the market for many years. Despite its ill-timed IPO in late 2007, the stock has since risen more than 1,100%, well outperforming the S&P 500 despite recent declines.
ULTA data by YCharts
In many ways, Ulta is a classic Buffett stock. The company is a niche leader in the beauty retail industry and currently operates more than 1,400 free-standing stores nationwide, as well as more than 500 smaller stores inside Target stores.
This penetration gives the company a reach that is perhaps matched only by LVMH’s Sephora, but Ulta has another advantage that other beauty retailers of its size can’t match. That’s because nearly every store has a full-service salon. This gives them an advantage over e-commerce companies.
For a long time, Ulta’s business model allowed it to achieve steady growth, but the company has recently faced some challenges due to increased competition and perhaps near saturation of the beauty market.
Beauty companies like ELF Beauty and Estee Lauder have also struggled recently, which may indicate that weak consumer spending is an industry-wide problem.
Ulta just reaffirmed its plans to open 200 net new stores over the next three years, and management says it believes it has room to open at least 1,800 stores in the long term. The company also announced a new $3 billion share repurchase authorization and reaffirmed its fiscal 2024 guidance.
Should I buy Ulta?
Part of the appeal of Ulta’s stock right now is that it’s down more than a third from its all-time highs earlier this year, and now trades at a price-to-earnings ratio of 14.7 (about half the S&P 500’s). We are conducting transactions.
The company has a history of strong results and should be able to overcome its current challenges with the help of its loyalty program, which is expected to reach 50 million members by 2028.
Additionally, the share buyback program, representing approximately 17% of market capitalization, provides the company with a means to accelerate earnings per share growth if comparable sales continue to be weak and the stock price remains undervalued. You should.
At this point, I wouldn’t call Alta a buy until we see clear evidence of a recovery, but the stock should recover over the long term. Having the backing of Buffett and Griffin is certainly a positive sign for Ulta, and it’s not too surprising that both billionaires jumped into the stock after its stock price plunged in April. .
When short-term challenges cause the stock price of a thriving company to fall, buying that stock is usually the secret to success.
