Ulta has had an impressive run over the past six months as its shares have beaten the S&P 500 by 15.1%. The stock now trades at $496.96, marking a 18.8% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is it too late to buy ULTA? Find out in our full research report, it’s free.

Why Does ULTA Stock Spark Debate?

Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ: ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.

Two Things to Like:

1. New Stores Popping Up Gradually, Supports Growth

A retailer’s store count often determines how much revenue it can generate.

Ulta operated 1,451 locations in the latest quarter. It has opened new stores quickly over the last two years, averaging 3.3% annual growth, faster than the broader consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

2. Stellar ROIC Showcases Lucrative Growth Opportunities

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Ulta’s five-year average ROIC was 31.2%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

One Reason to be Careful:

Long-Term Revenue Growth Disappoints

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last six years, Ulta grew its sales at a mediocre 8.7% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Ulta.

Final Judgment

Ulta’s positive characteristics outweigh the negatives, and with its shares topping the market in recent months, the stock trades at 21.1× forward P/E (or $496.96 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.

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