Should You Buy after the Big Pullback? – TipRanks Financial Blog

The recent pullback in Ulta Beauty (NASDAQ:ULTA) stock was frightening, no doubt, but at least it’s more fairly valued now. Nonetheless, I am neutral on ULTA stock because Ulta Beauty’s management doesn’t seem to anticipate robust near-term growth, so shareholders should have muted expectations.

Headquartered in Illinois, Ulta Beauty operates a chain of retail stores that sell cosmetics, fragrances, hair-care and skin-care products, and more. This isn’t an ideal sector to be in right now since consumers might continue to reduce their expenditures on the discretionary products that Ulta Beauty offers.

Dip-buyers may be tempted to buy ULTA stock because its price finally came down after riding high earlier this year. It’s likely not the worst trade you could make, but be prepared for slow growth as sticky inflation — and even retail theft, believe it or not — could hinder Ulta Beauty’s results for a while.

UTLA Stock Comes Down to an Acceptable Price Point

To be honest, I believe that Ulta Beauty stock never should have reached $550 in 2023’s first half. The pullback was healthy, as now the stock’s future gains can be more sustainable. Besides, the last thing any financial trader should be is a price chaser.

Currently, Ulta Beauty’s GAAP trailing 12-month (TTM) price-to-earnings (P/E) ratio is 17.05x, which is close to the sector median P/E ratio of 16.61x. In other words, there appears to be a decent value here, though perhaps not a screaming Buy.

At least, in theory, there should be some room for growth with a 17-ish P/E ratio. In terms of sales, Ulta Beauty has done okay but not spectacularly well. During 2023’s first quarter, the company reported 11.1% year-over-year revenue growth to $2.63 billion. This was roughly in line with analysts’ expectations – nothing to write home about, but a respectable result.

Meanwhile, Ulta Beauty’s Q1-2023 earnings per share (EPS) of $6.88 exceeded analysts’ consensus forecast of $6.82 per share. That’s a fairly decent beat, but there are other statistics to take note of, along with a problem that’s eating away at Ulta Beauty’s bottom line.

Theft is a Serious Problem for Ulta Beauty

Most people would never think of stealing cosmetics, but apparently, that’s happening, and it’s a major issue for Ulta Beauty. Indeed, Ulta Beauty CFO Scott Settersten has identified “shrink,” or loss due to theft or errors, as a significant factor…