Shares of cosmetics retail chain Ulta Beauty ( ULTA 1.50% ) are down more than 30% from all-time highs. But this is not a business in decline at all.
And it's quite easy to prove. Ulta Beauty had zero long-term debt as of February 2024. As investing great Peter Lynch used to say, "It's very hard to go bankrupt when you don't have any debt.
" To this I'll add that it's even harder to go bankrupt when a company is also profitable. And Ulta is very profitable with an operating-profit margin of 15% in its fiscal 2023. To reiterate, the stock is down.
But there is a reason it's down: At a recent investor conference, management said that fiscal 2024 started below its expectations. Consequently, it believes that it will deliver numbers at the low end of its financial guidance. I believe this is clearly a classic case of investors overreacting to the news.
After all, Ulta Beauty didn't pull its guidance. To the contrary, management said it would deliver on its financial guidance, albeit at the low end. For perspective, the low end of its net-sales guidance for fiscal 2024 is $11.
7 billion. That's still a year-over-year increase of 4%. The company has a clean balance sheet , is profitable, and is still growing at a modest pace -- as I said, it's easy to establish that this is not a business in decline.
But because the stock is down, investors are now facing one of two likely outcomes. And both are good for shareholders. Scenario No.
1: Ulta Beauty bounces back to normal Ulta Beauty sto.
