Ulta Beauty ( ULTA 11.17% ) The stock market received a boost on Thursday. The publication known as The Wall Street Journal reported that renowned investor Warren Buffett Has shown curiosity in the business. Referring to publicly available documents, the Journal It was observed that Buffett’s Berkshire Hathaway is a multinational conglomerate holding company. ( BRK.A 0.61% ) ( BRK.B 0.54% ) purchased 690,106 Ulta stocks since its most recent transaction 13F filing under the jurisdiction of the Securities and Exchange Commission.
What is Buffett doing?
As per the Journal Buffett’s investment in Ulta was valued at $266 million in June when the stock was priced at around $380. However, the stock price dropped to around $320, causing a loss for Buffett. Nonetheless, the situation has improved since then.
Today, when word got out about the billionaire’s attraction towards the company, the stock price of the cosmetics brand surged by approximately 12% until 12:40 p.m. Eastern Time. Even though Ulta stock is currently valued at $368 and a bit more, it has not reached the amount Buffett originally paid for it, however, it is approaching the breakeven point.
Should one consider purchasing Ulta stock?
The current concern is whether Ulta’s stock price can maintain the sudden increase in momentum caused by the news today. The response to this inquiry is uncertain.
The earnings report for the last quarter was not very positive. Ulta’s sales growth was only 3.4% in the first quarter of fiscal year 2024 when the earnings were announced in May, and half of that growth was due to the opening of new stores. Sales figures from stores that have been open for a certain period of time, used to compare performance year over year. The retailer experienced a modest growth of 1.6%. However, the earnings per share declined by 6%, which is unexpected considering the rise in sales. This decline was primarily due to a decrease in operating profit margins by 210 basis points, resulting in a new margin of 14.7%.
In response to the negative developments, Ulta has revised its total sales forecast for the year downwards and significantly reduced its projection for same-store sales to around 2.5%. Additionally, the company anticipates a further decline in operating profit margins, with a potential drop to 14% or below.
Ulta remains committed to repurchasing $1 billion worth of shares this year, indicating that the management shares Warren Buffett’s belief that the stock is currently undervalued. With Ulta’s stock trading at only 12.5 times earnings, it seems like both parties could be correct in their assessment.
