Ulta Stock Is Soaring: Can It Go Even Higher? News ad

Most investors are reluctant to consider stocks as a potential buy after the recent rally, not realizing that much of Wall Street activity today is driven by algorithms that look for exactly this kind of price action. The so-called momentum of a breakout stock could trigger further buying, leaving behind all those who were reluctant to get into the market in the early days of what could be a double-digit rally.

Such is the case with today’s unlikely name, an unnoticed player in the consumer goods sector despite being described (and treated) by much of the market as a consumer discretionary title. It’s about the action Ulta Beauty Inc. NASDAQ: ULTAa company that, despite recently growing 12.2% in its latest quarterly earnings report, is still a good buy for those looking to grow their capital over the long term.

Warren Buffett liked the stock enough to back it, and Ulta is a primer on Buffett stocks for those who want an inside look at its business model and financials. As bullish as these numbers are, there are plenty of other reasons why investors should take a second look at this stock and add it to their watchlists. As the United States economy faces potential inflationary pressures, demand for Ulta products will continue to grow steadily.

What Ulta’s latest earnings say about the stock today

Not exactly good news, but Ulta’s results were stunning compared to expectations in the middle of a slowing consumer cycle. With revenue growing just 1.7% and comparable sales (a very important metric in the retail sector) up just 0.6% for the quarter, it doesn’t look like Ulta has anything to explain its 12% rally.

Even gross margins fell to 39.7% from 39.9% a year ago, so why is the market so excited about the Ulta acquisition now? This is where context becomes increasingly important for investors to consider in the coming quarters, and the context suggests that despite the slight slowdown, Ulta is now the best alternative in the industry.

While other consumer stocks are reporting lower revenue, earnings and guidance, companies like Target company New York Stock Exchange: TGTwhich sold off nearly 25% after earnings, Ulta’s solid financials show much better investment quality and safety. This is something to keep in mind as more and more buyers gradually join the stock.

This is especially true as potential trade tariffs could lead to an inflationary scenario for the United States economy, causing discretionary items to become less of a priority for consumers. Even if this is the case, consumers will be happy to make room in their budget for Ulta products since they are an everyday necessity for most. This is the catalyst for these investments.

Even with falling margins and modest revenue growth, Ulta’s earnings per share (EPS) were $5.14, down from $5.07 last year, and a growth rate of up to 14%, justifying the stock’s jump. But how can a company increase earnings per share if everything else is falling or staying the same?

Share Repurchases: Management repurchased up to $267 million of Ulta stock during the quarter and $764.5 million over the last nine months. Moreover, up to $2.9 billion is available for further buybacks, meaning insiders believe the shares are cheap enough to buy at these prices.

What’s Next for Ulta Stock: Analysis of Future Growth Potential

To do this, investors need to consider Wall Street sentiment, starting with analyst ratings and price targets. Today’s consensus is set at $421.7 per share, suggesting upside potential of only 7.3% from today’s price. However, there are those who want to stand out from the crowd, such as Canaccord Genuity Group, which has an updated Buy rating.

As of December 2024, these analysts also have a $476 price target for Ulta shares, suggesting much higher upside potential of up to 21.2%. Interestingly, just six months ago, in June 2024, Ulta’s stock price target was set at a much higher level of $507 per share, and little has changed in the business since then.

The only thing that hasn’t changed is that profitability is the best in the industry and that more than 90% of Ulta’s sales come from loyalty programs, which is unprecedented in retail. This level of retention and market penetration is what Warren Buffett would call the “moat” of the business, and is likely what made him look at Ulta.

This retention, as well as the predictability and stability of Ulta’s business, is also reflected in the company’s financial performance, particularly in return on invested capital (ROIC) of up to 28.2% as of the trailing 12 months.

ROIC is the basis for stocks that can be a source of wealth, as annual stock price performance tends to match the average ROIC over the long term.

Wall Street analysts weigh in

Several equity analysts have commented on TGT shares. JPMorgan Chase & Co. lowered their price target on Target from $167.00 to $139.00 and set a “neutral” rating on the stock in a report on Thursday, November 21st. Telsey Advisory Group reiterated an “outperform” rating and set a $195.00 price target on shares of Target in a research note on Wednesday, November 20th. Sanford S. Bernstein initiated coverage on shares of Target in a research report on Tuesday, October 22nd. They set a “market perform” rating and a $168.00 price target for the company. Royal Bank of Canada raised their target price on Target from $174.00 to $177.00 and gave the stock an “outperform” rating in a research note on Thursday, August 22nd. Finally, Wells Fargo & Company lowered their target price on shares of Target from $180.00 to $150.00 and set an “overweight” rating on the stock in a report on Wednesday, November 20th. One investment analyst has rated the company with a sell rating, seventeen have given a “hold” rating and fifteen have assigned a “buy” rating to the company. The company currently has an average rating of “Hold” and a consensus price target of $160.30, according to MarketBeat.

Check out our latest analysis for Target

Target trade down 0.7%

The stock has a 50-day moving average price of $147.38 and a 200-day moving average price of $147.91. The company has a current ratio of 0.94, a quick ratio of 0.25 and a debt-to-equity ratio of 0.99. The stock has a market cap of $59.17 billion, a PE ratio of 13.79, a P/E/G ratio of 2.16 and a beta of 1.17.

Target (NYSE:TGT – Get Free Report) last announced its quarterly earnings results on Wednesday, November 20th. The retailer reported earnings per share of $1.85 for the quarter, missing analysts’ consensus estimates of $2.30 by ($0.45). The business posted revenue of $25.23 billion for the quarter, compared to the consensus estimate of $25.87 billion. Target’s net margin was 4.06% and its return on equity was 31.11%. The company’s revenue increased 0.9% compared to the same period last year. During the same period in the prior year, earnings per share were $2.10. Sell-side analysts expect Target to report earnings per share of 8.6 for the current year.

Target announces dividend

The firm also recently declared a quarterly dividend, which will be paid on Tuesday, December 10th. Record investors will be paid a dividend of $1.12 on Wednesday, November 20th. The ex-dividend date for this dividend is Wednesday, November 20th. This represents an annualized dividend of $4.48 and a yield of 3.47%. Target’s Dividend Payout Ratio (DPR) is currently 47.51%.

Insider buying and selling

In other Target news, insider Richard H. Gomez sold 6,348 shares of the stock in a transaction that occurred on Friday, September 27th. The shares were sold at an average price of $157.17, for a total transaction value of $997,715.16. Following the completion of the transaction, the insider now owns 123,551 shares of the company’s stock, valued at $19,418,510.67. This represents a 4.89% decrease in their shareholding. The sale was disclosed in a legal filing with the Securities and Exchange Commission, which is available at this hyperlink. 0.15% of shares are owned by corporate insiders.

Target company profile (NYSE:TGT)

Target Corporation operates as a merchandise retailer in the United States. The company offers clothing for women, men, boys, girls, babies, babies and newborns, as well as jewelry, accessories and shoes; as well as cosmetics and personal care products, baby supplies, cleaning products, paper products and pet supplies.

See also

You might want to hear this before you consider Target.

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