Prediction: Ulta Beauty Stock Will Beat the Market. Here’s Why.

For traders who need to study carefully to beat the market, they do not deserve to turn into an expert in advanced fields similar to synthetic intelligence, quantum computing or biotechnology. Easy options can also affect market-beating stocks in addition to the cosmetics retailer Ulta Beauty (NASDAQ: ULTA).

Ulta Beauty is a U.S. cosmetics retailer with 1,437 stores by the end of its fiscal third quarter in 2024. It sells hundreds of beauty brands in-store, on its website and through a store-to-store partnership plan similar to its partnership with The goal. And provided that cosmetic goods remain in the time of the Pharaohs, I do not invent any more that they will go out of fashion in my lifetime.

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I recognize that Ulta Beauty’s physical presence and digital offerings are important to patrons. With their brick-and-mortar stores, many other people enjoy providers that can’t be changed online now, much like hair salons with thick mounts. Admittedly, the options on the other hand affect a moderate amount of online shopping. Ulta Beauty attracts shoppers to its online situation and app through the design of its loyalty program, which has more than 44 million associates.

Indeed, Ulta Beauty derives an outsized percentage of its sales from its loyalty membership program — a program that grew another 5% year-over-year in the third quarter. It is therefore no longer the simplest cosmetic substitute resistant, I take into account that part of the market that absorbs the company is resistant so nicely, because of its precise contributions.

As a still-underappreciated whisper of a substitute, Ulta Beauty’s improvement in digital channels unlocks original difference. Fancy Walmartthe company is doing more with retail media – using digital platforms to market goods to subscribers, generating revenue from advertisers.

Why Ulta Beauty Stock Will Beat the Market

The inspiration for my investment thesis with Ulta Beauty is that its alternative might not be losing ground any longer – the thesis now does not require a spectacular level of increase. Considering the dominant position in the market, the I factor here is reasonable. The company hopes to record sales of more than $11 billion in 2024, and I estimate that its sales will undoubtedly not fall below that excessive in the foreseeable future.

Ulta Beauty has a respectable return on beauty. It expects a current margin of approximately 13% for 2024, and management projects long-term current margins in the range of 12.7% to 13%. Perhaps there would be nothing unreasonable in this steering. Indeed, this margin guidance is at some level of the company’s reasonable 10-year horizon, as shown in the table below.

ULTA Running Margin (TTM) knowledge YCharts.

Assuming Ulta Beauty can deliver $11 billion in annual sales and impact a 13% operating margin, the company is looking at more than $1.4 billion in annual operating profit.

What will Ulta Beauty do with all that money? The company now has no long-term debt, so there are no lenders to meet. Also, there aren’t many original stores open anymore because of the myth that it’s already so huge. This means that future capital expenditure is undoubtedly not significant.

In my search, Ulta Beauty’s famous earnings will undoubtedly be returned to shareholders. The company doesn’t pay a dividend right now, which means it might do well to continue share buybacks because it has before. Indeed, the table below shows that the number of popular parts has decreased by almost 18% over the 5 years of release, which is correct.

ULTA Reasonable Diluted shares visible (quarterly) knowledge of YCharts.

Interestingly, Ulta Beauty is a nice stock. A company’s reasonable value-to-earnings (P/E) ratio S&P 500 is ready on the 29th, according to YCharts. Ulta Beauty, on the other hand, has averaged a P/E ratio of 31 over its 10-year release. But absolutely at No. 2, it trades at a P/E ratio of a correct 16 — more than 40% more cost-effective than the stock market favorite.

There are two possibilities in my search. One possibility is that Ulta Beauty’s stock is currently undervalued, and that might eventually push it upside to turn more moderately valued. That would be accurate. But I factor in the more undoubted probability that this might perhaps perhaps be a good stop in stock level territory.

That’s certainly a bargain for Ulta Beauty shareholders. If the company essentially uses cash for share buybacks, then the more cost-effective stockholder allows repurchases to increase the shareholder rate by an increased amount. In short, it is certain that you may achieve that the company can reduce the number of its parts faster than in past cases.

According to the scenario I presented, I can achieve that Ulta Beauty stock can project a 10% annual return. But remember that this scenario represents zero improvement. Assuming it develops, the upside is elevated. And it will really evolve. Indeed, its retail media community offers a simple direction to increase high-margin earnings that is ready to present an improvement.

I predict that Ulta Beauty stock will outperform the S&P 500 over the next 5 years – and traders no longer deserve to be judged too likely to differentiate growth.

Maybe it would just be cool to invest $1,000 in Ulta Beauty right now?

Before you stock up at Ulta Beauty, consider this myth:

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Goal, Ulta Beauty, and Walmart. The Motley Fool has disclosure protections.

The views and opinions expressed herein are those of the author and fabrication no longer reflect those of Nasdaq, Inc.