Ulta Beauty Inc

+3.66 (+0.72%)
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Why ULTA May be the Strongest Retail Stock



➜ ULTA generates $1.14 in revenue for every $1 in expense, which is above the sector average of $1.06.

ULTA Salon (ULTA) is perhaps the single most compelling retail stock in the United States. It's growing revenue, operating margins, earnings, free cash flow and capital expenditures. The stock continues to make new all-time highs, up 83% in the last year and up 14% in the last quarter, even as the broader market has stumbled. The firm aims much of its growth efforts at Millenials and continues to execute both in the on-line space and brick-and-mortar.

How unique is ULTA? Well, if we scan the entire retail sector for companies above $10 billion in market cap, with bullish technicals and a five star fundamental rating from Capital Market Laboratories (CMLviz.com), we find only seven companies in the entire United States that meet those criteria. Here is a snapshot of that exact scan.

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Honorable mention goes to The Home Depot (HD) and Ross Stores (ROST).

On its most recent earnings call (May 29th), ULTA revealed nearly 50% growth growth in e-commerce. The company has had remarkable success with its loyalty program which has now reached 15.5 million active members, resulting from increased retention and strong growth. Let's look at a chart of revenue (TTM) in the blue bars and net income (TTM) in the orange line, below.

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We can see that revenue (TTM) is up over 21% and net income (TTM) is up nearly 30%. Revenue has grown nearly 46% over the last two-years and net income has grown over 52% in the last two-years.

The company continued to "benefit from more targeted marketing through [its] loyalty and CRM program." Further, ULTA is one of very few retailers that understands how to use social media to further its brand, its reach and ultimately, its growth. In a Mother's Day social media program which engaged its users to participate, the original campaign video was viewed 1.4 million times on social media channels and garnered more than 100 million media impressions. That's simply a company doing it right.

Gottlieb Risk Factor  

ULTA has neither elevated nor depressed stock price movement potential over the next 30-days (movement up or down). Although several proprietary factors affect the risk rating, in particular for ULTA some of the items driving the rating are:
↳  A large absolute stock return over the last 3-months (+14.2%).
What is this "risk factor"?

    The stock price range reflected by the option market over the next 30-days is ($158.30, $183.80).

Technicals   |   Support: 164.8   |   Resistance: Stock is Through Resistance   

Golden Cross Alert: The 50-day MA is now above the 200-day MA.
Swing Golden Cross Alert: The short-term 10 day MA is now above the 50 day MA.

ULTA has a five bull (top rated) technical rating because it's trading above its 10-, 50-and 200- day moving averages and the stock is up on the day.

Let's look at the core elements that drive the company's fundamental rating.

Fundamentals Rating Summary

Revenue (TTM US$ Millions) 3,396 2,802 2,329

Operating Margin (QTR) 1.14 1.13 1.13 RISING

Net Income (TTM US$ Millions) 274 211 180

Levered Free Cash Flow (TTM US$ Millions) 86 75 -57 RISING

Capital Expenditures (TTM US$ Millions) 267 223 206 RISING

Stock Returns and Chart

ULTA is up +14.2% over the last three months and up +25.2% over the last six months. The stock price is up +82.5% over the last year.

Before we dig into the fundamental trends that drive the rating, let's look at a two-year stock chart with regression channel and 10-day momentum (on the bottom).
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Now let's examine the visualizations of the critical financial measures.

We'll end this analysis with a series of visuals surrounding free cash flow and capital expenditures.

Levered Free Cash Flow
Levered Free Cash Flow (TTM US$ Millions) is a critical determinant of stock price since market cap is the present value of all future free cash flows. For ULTA the metric is rising (it was $75 million last year). For the most recent trailing-twelve-months the company reported Levered Free Cash Flow (TTM US$ Millions) of $86 million. That's a rise in the most recent year from $75 million (a 15.09% increase.)

This measure of cash is up $143 million from -57 two-years ago.

For our next chart we plot Levered Free Cash Flow (TTM US$ Millions) in the blue bars through time. Note the rising bars from a year ago (four quarters ago).

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Capital Expenditures
Capital Expenditures (TTM US$ Millions) in the most recent quarter for ULTA was $267 million. So we see a company not only growing revenue, earnings and free cash flow, but also investing heavily in its future. CapEx is is up 19% year-over-year 30% over the last two-years. In the retail industry, this is not only an anomaly, but a unicorn. Note in the chart below that the green bar represents the all-time high

In our final time series chart we plot Capital Expenditures (TTM US$ Millions) in the blue bars.

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ULTA appears to have mastered customer loyalty, customer growth, brand, social media, Millenails and ultimately its future. The company sits at all-time highs in revenue, earnings and CapEx, all the while showing strong growth in free cash flow. ULTA is in a remarkable group of just a few retailers with impeccable fundamentals, bullish technicals and a booming stock price. Even amongst this rather elite class, ULTA may in fact stand head-and-shoulders above the rest.

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