Is Ulta Beauty, Inc. (NASDAQ:ULTA) Potentially Undervalued?

Let's talk about the popular Ulta Beauty, Inc. (NASDAQ:ULTA). The company's shares received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$551 at one point, and dropping to the lows of US$404. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Ulta Beauty's current trading price of US$422 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Ulta Beauty’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Ulta Beauty

What's The Opportunity In Ulta Beauty?

According to my valuation model, Ulta Beauty seems to be fairly priced at around 5.9% below my intrinsic value, which means if you buy Ulta Beauty today, you’d be paying a fair price for it. And if you believe that the stock is really worth $448.90, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Ulta Beauty’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Ulta Beauty?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Ulta Beauty's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in ULTA’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on ULTA, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. When we did our research, we found 2 warning signs for Ulta Beauty (1 shouldn't be ignored!) that we believe deserve your full attention.

If you are no longer interested in Ulta Beauty, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.