Warren Buffett Just Trimmed His Stake in Ulta Beauty Stock. Time to Sell?

In a surprising move, Warren Buffett's Berkshire Hathaway recently trimmed its stake in Ulta Beauty (ULTA), selling nearly all of its shares just one quarter after acquiring them. This has left investors wondering if it's time to sell their Ulta Beauty stock. Let's analyze the situation and consider the factors that could influence your decision.

Ulta Beauty has faced challenges in recent quarters, with slowing sales growth and increased competition. The company's comparable-store sales declined by 1.2% in the second quarter, and overall revenue rose by just 1% to $2.55 billion. Profits also tumbled, with gross margin falling from 39.3% to 38.3% and operating margin dropping from 15.5% to 12.9%. Despite these struggles, Ulta Beauty still enjoys competitive advantages, such as its large retail stores, salons, loyalty program, and shops inside Target stores.



While Berkshire Hathaway's move may seem concerning, it's important to consider the broader context. Ulta Beauty's valuation is currently attractive, with a price-to-earnings ratio of less than 15. The company has long-term growth potential, with plans to expand its store count to over 1,800 and increase loyalty members to 50 million by 2028. Ulta Beauty's management has outlined a strategy to sharpen its leadership in product assortment, customer experience, and engagement, which could drive growth and recovery.

Expert opinions on Ulta Beauty's stock are mixed. Some analysts, like those at Morningstar, believe the stock is undervalued compared to their long-term fair value estimate of $405 per share. Others, such as Michael Baker from D.A. Davidson, expect Ulta Beauty to have a "negative" quarter. Despite these differing opinions, there's no clear consensus that it's time to sell Ulta Beauty stock.

In conclusion, Warren Buffett's decision to trim his stake in Ulta Beauty doesn't necessarily mean it's time to sell. Ulta Beauty's challenges are well-documented, but the company's competitive advantages and long-term growth potential remain intact. The stock's attractive valuation and management's strategic plans suggest that there's no immediate need to sell. However, it's crucial to monitor Ulta Beauty's performance and remain adaptable to changing market conditions. As always, consult with a financial advisor before making any investment decisions.