Ulta is a quality business with strong fundamentals, but its current valuation makes it less attractive than previous entry points.

It all started with Ulta Beauty, the largest beauty product retailer in the United States . Think of it as a one-stop destination for makeup, skincare, haircare, perfumes, and salon services, all under one roof.

They have built what every retailer dreams of. True loyalty with over 44 million rewards program members continuing to return.

Beauty products are also one of the things people buy that are most resistant to recession. Even when money is scarce, people will still be keen to take care of themselves. Their new partnership with Bath & Body Works is now active in more than 600 stores.

Well, sales reached $3 billion last quarter, an increase of nearly 9%, and they also raised their forecasts for the entire year. On the other hand, the opposing argument (pessimism) is that sales growth at existing stores has slowed to 3.8%.

Guys, sales didn't drop by 3.8%, growth slowed to 3.8%. This represents about half of the 6.7% gain achieved last year, and the stock is still down about 8% this year.

Guys, one of the reasons I love Ulta Beauty is that they have a high return on investment, which means that whenever they invest money in the business, they get good returns from it. It is a measure of quality.

Another thing I love about it is that its market value is $23 billion. Its value as a business is $24 billion . That difference of 4 billion, sorry, 27 billion. That difference is $4 billion , and it essentially represents their debt.

Now you have to remember that this includes their own retail stores. This includes their leases, yet they generated $1 billion in free cash flow last year. Therefore, their debts are very reasonable.

For a company with such high returns on capital , it sells for slightly more than 20 times free cash flow. Now, what I want to remind everyone of is that I was buying Ulta shares as part of this contest in January 2025.

The share price at that time was around $400. Its price is now $540.

Yes, I like the company, but it's not as good a buy at 540 as it was at 400. That's the key point to remember.

With the exception of one indicator here, the price versus five- year free cash flow, all are correct signs, and the analysts from whom we obtain the data expect earnings per share to grow from $29 to $43 over the next four or five years .

So, I believe all of this for Ulta Beauty. I think it will last for 20 or 30 years. I believe it will generate higher revenues and profits in 20 or 30 years than it does today.

When this competition began in January 2025, I thought this company could be bought at a reasonable price.

Key point here, this does not include the balance sheet , but fortunately the balance sheet here is very good . They have a reasonable amount of debt in it. Therefore, I calculated revenue growth of 3%, 5% and 7%.

Next, what profit margin and free cash flow do I expect over the next ten years? Okay, I'll look at their history. I would choose 9.5%, 10%, and 10.5%. They can achieve all of this, but obviously it is not guaranteed.

Do I think this company is better than the average company in the S&P? Well, look at the return on capital, its resilience, and how good it is in this sector. Do I think this is a quality business?

Yes, I think so. Therefore, I give her a bonus of 17 at the minimum, 23 at the maximum, and 20 times the earnings on average.

Finally, my market return of 9.5% simply tells me what value I believe this company is worth today. So, press the analyze button. The stock is currently priced at $540 per share.

Guys, I have a low price of 455 , a high price of 830, and an average price of 615. That means if all my average assumptions are met, I can expect a return of about 11.3% based on today's price, not the price I wanted a year and a half ago when I started competing.