Ulta Beauty在2024年表现不佳，股价下跌了32%，但巴菲特似乎看到了其潜在的价值。Buffett's investment strategy usually leans towards companies with competitive advantages, good management teams, and reasonable valuations. Ulta Beauty meets these criteria.
"Stock God" Buffett's latest position adjustment has been revealed. As previously disclosed, the largest shareholding in Apple has been cut in half, but surprisingly, new positions have been added to the plummeting cosmetic stock Ulta Beauty this year.
Ulta Beauty has become Buffet's "new favorite", as Berkshire Hathaway established a position of 690,000 shares in Ulta Beauty in the second quarter, which is worth approximately $266 million USD. What does Buffet see in Ulta Beauty?
Ulta Beauty performed poorly in 2024, with its stock price dropping by 32%. Nevertheless, Buffet apparently sees its potential value.
First of all, in terms of valuation, according to William Blair analyst Dylan Carden, Ulta Beauty's stock price has fallen to its lowest point in many years. From indicators such as P/E ratio, its valuation is already very low, which is what Buffet values as a value investment opportunity.
Ulta’s stock P/E ratio is below two digits, similar to luxury department store Nordstrom. Nordstrom is losing market share and may need to close stores, but Ulta still has strong resilience.
From the perspective of free cash flow, companies with competitive advantages that are struggling often conduct good yield trading, coupled with an excellent management team that tends to provide some returns to shareholders. In March, Ulta Beauty announced a $2 billion share buyback plan. As of May 4, the plan still has $1.8 billion remaining, and the company may announce dividend distribution later this year.
In addition, Ulta Beauty's unique market positioning, spanning mass-market cosmetics and high-end brands, may also be one of the reasons why Buffett is bullish on its stock. DA Davidson analyst Michael Baker pointed out that Ulta's stock price has been under pressure, in part because Sephora, a competitor, has formed a new competitive situation and opened about 1,000 "store-in-store" concept stores at Kohl's, which has put pressure on Ulta Beauty's market share. This has affected Ulta's growth momentum in the high-end category, but the company's market share in the mass-market category is still growing.
It is worth mentioning that Buffett's investment strategy usually tends to lean towards companies with competitive advantages, good management teams, and rational valuations, all of which Ulta Beauty meets. In addition, Ulta has always been on DA Davidson's "best varieties" list, which is based on Buffett's investment philosophy.
