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Ulta Salon, Cosmetics & Fragrance (ULTA)

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December 21, 2013 – Comments (0) | RELATED TICKERS: ULTA

Ulta Salon (ULTA) is a business I came across after running some screens in CAPS. The company has a chain of "beauty superstores" in the U.S., and has expanded at an impressive rate over the past several years. Below is a brief analysis I did before making an "outperform" call on CAPS last night. The stock was recently hit 25% after reporting results that didn't mesh with analyst expectations. 

I am not an expert of Ulta Salon, but the last earnings report was nothing to scoff at. Operating cash flow has increased to $100.13 million so far this year, compared to $77.46 million at the same time last year. Earnings have increased over 22% this year as well, accompanied by a 23.3% increase in revenue. 

The company has no debt, with $240.92 million in cash. 

Mary Dillon, the company's new CEO appointed in June, strikes me as a competent leader focused on attracting new customers and building customer loyalty. 

The company now has 664 stores in the U.S. after opening 55 in the most recent quarter. So far in 2013 the company's same-store sales have increased 7.3%.

Ulta Salon has the financial strength to endure short-term hiccups. Boo hoo for analysts and short-term traders who are disappointed with the results of one quarter (and short-term projections based on a tough retail environment). 

The company's store growth, comps growth, and cash flow/earnings generation help me see this recent drop as a great opportunity to rate this as a long-term outperform. The P/E is hovering around 31, providing an opportunity to pick up a growth company at a fairly reasonable price. 

I don't know a whole lot about the business, but will be looking into it more. So far I like what I see: a quality growth company getting unnecessarily beat up by a short-sighted market.

I'm glad I came across Ulta Salon, and will continue to do some digging into the company as I have time. For now, the business looks interesting and the recent drop in share price makes the stock look pretty appealing. That's enough for me to start with a CAPS outperform call. 

Best,
David K

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