Where to Buy Ulta Beauty as Surge Persists
The beauty and cosmetics retailer is looking good, but should investors buy the stock?
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Consumers may be feeling squeezed, but they still want to look good. At least that’s the message from Ulta Beauty’s (ULTA) successful third quarter.
On Thursday, we analyzed a fast-growing retailer whose shares have gained over 65% this year. That stock, Five Below (FIVE) , closed at its highest price in over a year on Thursday.
Like Five Below, Ulta Beauty is opening stores at a rapid pace. The Bolingbrook, Illinois-based beauty and cosmetics chain plans to open 200 locations over the next three years. Ulta is also expanding internationally, with several news locations in Mexico City.
Ulta Beats Wall Street
Ulta’s third quarter earnings of $5.14 per share were well ahead of analysts’ expectations of $4.60. Revenues for the quarter came in at a stronger-than-anticipated $2.86 billion, beating estimates by about 5%. Additionally, the company raised guidance for earnings and revenue for the second consecutive quarter.
Although the stock fell 2% during Thursday’s regular trading session, when the news hit after the closing bell, Ulta shot higher by 6.5% in after-hours trading.
Checking Ulta's Charts
Ulta Beauty shares have gained 24% year-to-date, but in recent weeks, the stock has been fluctuating above and below its 50-day moving average (blue, point A). However, Ulta’s after-hours rally brings the stock back to its recent highs (point B).
A break above those highs could pull new money into the stock. Ulta has been consolidating for several months, and this earnings report could be the catalyst that takes it to the next level.
There is something holding me back from owning Ulta, and it’s not visible on the above chart. In order to see it, we’ll need to zoom out to Ulta Beauty’s weekly chart.
From this perspective, we see that Thursday’s after-hours thrust has placed Ulta into an area thick with resistance (shaded yellow). Ulta Beauty has been trying and failing to breach that area for nearly three years.
It’s not unreasonable to assume that a stock might break through a resistance level, but Ulta has repeatedly tried and failed to vault this area.
Will the third try be the charm? The two failed attempts to breach this area, which runs from approximately $550 to $575, resulted in declines of 32% in 2023, and over 40% in 2024.
Bottom Line
Would I buy shares of Ulta Beauty? Only if the stock can prove first that it has the strength to reach new highs. If Ulta can rally to $600, then I’ll look to buy a pullback to the $550 to $575 area.
At the time of publication, Ponsi was long FIVE.
