Shares of Ulta Beauty (ULTA) surged 11% following the news that Warren Buffett’s Berkshire Hathaway (BRK.B) had invested in the company. If you feel like you missed the boat, fear not, as it’s not too late to invest in Buffett’s latest pick. The $266 million stake, though a small bet for Berkshire at just 0.1% of its public equity portfolio, indicates that Buffett (or one of his trusted associates) sees value in the company.
Buffett is widely regarded as one of the greatest investors of all time, so it’s typical for stocks to jump when news breaks that “the Oracle of Omaha” has taken a position. This time was no different when Berkshire filed its 13F for the second quarter, and Ulta shares responded accordingly.
I’m bullish on the $18.4 billion beauty retailer, not just because of Buffett’s endorsement but also due to its inexpensive valuation, strong track record of revenue growth, and impressive margins for a retailer. Additionally, Wall Street analysts see Ulta as having significant upside potential.
What Is Ulta Beauty?
Founded in 1990, Ulta Beauty is a retailer of cosmetics, beauty and skincare products, and more. The company’s stores also include salon services. It is an omnichannel retailer with a physical and online presence. There are currently 1,421 Ulta Beauty locations in the United States, and the company is planning to expand into Mexico in 2025.
Beautiful Valuation
It’s likely not too late to buy Ulta because shares are still quite cheap, even after accounting for the inevitable Berkshire-induced surge. Ulta’s fiscal year ends in January, and with the company expected to earn $25.68 per share this year, the company trades at just 14.7 times these consensus earnings estimates.
This is significantly cheaper than the broader market — the S&P 500 (SPX) trades at 24.2 times earnings — so it’s easy to see why a value investor like Buffett was attracted to the stock.
Plus, when you zoom out to Fiscal 2026, shares of Ulta are even cheaper, trading at just 13.4 times consensus earnings estimates that call for the company to earn $28.19 per share.
Ulta’s Value Is More Than Just Skin Deep
Shares of Ulta had lost significant value when the company missed estimates and revised guidance lower earlier this year. The company faces rising competition from Sephora, which is rapidly opening more locations inside Kohl’s (KSS) department stores, and from online retail behemoth Amazon (AMZN), which is increasingly working with high-profile beauty and cosmetics brands.
But the sell-off seems overdone. According to The Wall Street Journal, before the Berkshire news broke, shares had lost about 42% of their value since the March announcement. Even after the post-Buffett rally, shares are still down 23% year-to-date, while the S&P 500 is up 16.5% for the year. Thus, there is plenty of room for Ulta to “catch up” to the broader market.
And the company is doing plenty of things right. It has grown revenue at an 11% compound annual growth rate (CAGR) over the past five years, and its operating margins are about double those of the average retailer in the S&P 500 while being in line with TJX (TJX), which is widely viewed as one of the best in the business.
Additionally, Ulta’s impressive average return on investment (ROI) of 26% over the past five years is superior to that of even the mighty Costco (COST), which averaged 18%.
And while Ulta isn’t a dividend stock, it still returns a lot of capital to shareholders. It has its sights set on repurchasing $1 billion worth of shares this year. This can also be seen as a sign that Ulta’s management agrees with Buffett that the stock is undervalued.
Lastly, the company has a strong balance sheet, so there are no concerns about debt here.
Is ULTA Stock a Buy, According to Analysts?
Turning to Wall Street, ULTA earns a Moderate Buy consensus rating based on 10 Buys, seven Holds, and one Sell rating assigned in the past three months. The average ULTA stock price target of $467.82 implies 24.1% upside potential from current levels.
Beauty in the Eye of the Beholder
Shares of Ulta Beauty received a nice boost when Berkshire Hathaway’s latest 13F revealed that the legendary firm had invested in the beauty and cosmetics retailer. But even after the nice run it has had, shares still look decidedly cheap, trading at just 14.7 times January 2025 earnings estimates.
I’m bullish on shares of Ulta based on Buffett’s endorsement, this cheap valuation, and the stock’s strong history of growth and impressive margins. Patient investors who invest alongside Buffett will likely be rewarded for seeing the value in this best-in-class retailer.
