Ulta Beauty (NASDAQ: ULTA) experienced a significant boost in its stock price on Thursday, rising by 12% following news that Warren Buffett's Berkshire Hathaway has acquired a notable stake in the company.
According to The Wall Street Journal, Berkshire Hathaway purchased 690,106 shares, valued at approximately $266 million at the end of June when the stock was trading around $380. Despite a dip in the stock price to about $320 afterward, the announcement of Buffett's interest has driven the price back up to nearly $368, close to his breakeven point.
While the surge in stock price is promising, Ulta’s recent financial performance has been less so. The company reported only 3.4% sales growth in fiscal Q1 2024, with just 1.6% growth in same-store sales. Operating profit margins also fell by 210 basis points, dropping to 14.7%, and per-share profits decreased by 6%.
Ulta further dampened investor expectations by lowering its full-year sales guidance and slashing its same-store sales growth projection nearly in half, to about 2.5%. The company also expects continued erosion in profit margins, possibly falling to 14% or lower.
Despite these challenges, Ulta's management remains optimistic about the stock's value, planning to repurchase $1 billion in shares this year.
At a current valuation of just 12.5x earnings, both Buffett and Ulta’s leadership appear to believe that the stock is undervalued, potentially signaling a buying opportunity for investors willing to bet on a turnaround.
According to The Wall Street Journal, Berkshire Hathaway purchased 690,106 shares, valued at approximately $266 million at the end of June when the stock was trading around $380. Despite a dip in the stock price to about $320 afterward, the announcement of Buffett's interest has driven the price back up to nearly $368, close to his breakeven point.
While the surge in stock price is promising, Ulta’s recent financial performance has been less so. The company reported only 3.4% sales growth in fiscal Q1 2024, with just 1.6% growth in same-store sales. Operating profit margins also fell by 210 basis points, dropping to 14.7%, and per-share profits decreased by 6%.
Ulta further dampened investor expectations by lowering its full-year sales guidance and slashing its same-store sales growth projection nearly in half, to about 2.5%. The company also expects continued erosion in profit margins, possibly falling to 14% or lower.
Despite these challenges, Ulta's management remains optimistic about the stock's value, planning to repurchase $1 billion in shares this year.
At a current valuation of just 12.5x earnings, both Buffett and Ulta’s leadership appear to believe that the stock is undervalued, potentially signaling a buying opportunity for investors willing to bet on a turnaround.