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How Does Ulta Beauty’s Valuation Look ahead of 3Q Results?

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12-month forward PE

As of November 24, Ulta Beauty (ULTA) was trading at a 12-month forward PE (price-to-earnings) ratio of 23.2x. The company’s valuation multiple has come down by 0.8% since the announcement of its fiscal 2Q17 results in August 2017. Ulta Beauty beat analysts’ expectations for fiscal 2Q17 and raised its guidance for full-year fiscal 2017. However, investors were disappointed with the slowdown in the fiscal 2Q17 same-store sales growth.

Also, concerns about the growing competition in the beauty space and its impact on Ulta Beauty’s future performance have further impacted the company’s valuation.

As of November 24, Ulta Beauty was trading at a higher valuation multiple than the S&P 500 Index, which was trading at a 12-month forward PE of 18.5x.

The 12-month forward PE is computed by dividing a company’s current stock price by its projected EPS (earnings per share) for the next four quarters. This forward valuation multiple is influenced by several factors including growth expectations.

Growth expectations

Currently, analysts expect Ulta Beauty’s sales to rise 21.1% to $5.9 billion in full-year fiscal 2017, which ends on February 3, 2018. Analysts expect the company’s adjusted EPS to grow 28.4% to $8.37 in fiscal 2017. For fiscal 2018, analysts forecast the company’s sales and adjusted EPS to grow 14.3% and 17.7%, respectively.

Ulta Beauty’s key strengths include its extensive store presence and impressive product range of 20,000 products from about 500 well-established and emerging beauty brands. The company has been consistently delivering double-digit growth in its sales and adjusted EPS. However, the growing competition in the beauty space is a matter of concern.

As of the end of fiscal 2Q17, Ulta Beauty operated 1,010 retail stores across 48 states and the District of Columbia.

For more updates and earnings analysis, visit Market Realist’s Consumer Discretionary page.

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