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Ulta Beauty Inc (NASDAQ:ULTA) is receiving a sell-side downgrade, but not on the basis of weak fundamentals. The law of large numbers could ultimately slow the company's blistering growth.
The Analyst
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Loop Capital Market's Anthony Chukumba downgraded Ulta from Buy to Hold and maintained a $250 price target.
The Thesis
Loop's downgrade of Ulta is based on valuation rather than a change in the cosmetics retailer's fundamentals, Chukumba said in the Wednesday note.
“While we continue to believe Ulta Beauty has myriad drivers for impressive future comparable sales gains, we think slowing comp and square footage growth are likely to constrain the company’s valuation,” the analyst said.
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A potential slowdown in growth from Ulta is more likely to come from the law of large numbers rather than a significant industry slowdown, Chukumba said.
Ulta’s sales per square foot reached $548 in fiscal 2017, up from $407 in fiscal 2013, according to Loop. The retailer plans to open 100 new stores in fiscal 2018. The analyst said he'll wait for a more attractive entry point to become more constructive on the stock.
Investor concerns surrounding department stores' promotional efforts to compete in cosmetic sales — and Amazon.com, Inc. (NASDAQ:AMZN)'s progress with higher-priced prestige beauty products — are unsubstantiated, Chukumba said.
Price Action
Ulta shares were down 0.88 percent at $248.42 at the close Wednesday.
Related Links:
Piper Jaffray Upgrades Ulta; Survey Reveals Teens Spending More On Cosmetics
Guggenheim Survey Of Ulta Consumers Paints Bullish Picture
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.