Is ULTA Still a Buy Despite Its Elevated Valuation?

The question of whether Ulta Beauty (ULTA) remains a compelling long-term investment hinges on a nuanced evaluation of its valuation metrics, growth trajectory, and positioning within the evolving beauty industry. While the stock's current price-to-earnings (P/E) ratio of 19.04 appears elevated relative to the Consumer Cyclical sector average of 17.65, it is 32% below its 10-year average of 27.91 according to data. This suggests that while ULTA is not trading at a discount, its valuation is historically moderate. However, the stock's forward P/E of 21.11 and a projected PEG ratio of 3.41 raise questions about whether its growth prospects justify the premium.

Valuation Metrics: A Mixed Picture

Ulta's valuation appears to straddle two narratives. On one hand, its P/E ratio is below the beauty industry's 2025 average of 22.2x indicating relative affordability compared to peers. On the other, its PEG ratio-calculated using a 5-year EBITDA growth rate of 21.90%-suggests a more favorable valuation at 0.95 according to analysis. This discrepancy underscores the importance of methodology in assessing growth justification. For instance, using a 7% annual EPS growth projection (based on 5-year forecasts), ULTA's PEG ratio would rise to approximately 3.01, signaling overvaluation. Yet, if EBITDA growth is the primary metric, the stock appears undervalued.

The company's market capitalization of $22.26 billion further highlights its dominance in the beauty retail sector. Competitors like Sally Beauty Holdings ($983 million) and Regis Corp ($67 million) pale in comparison, both in size and valuation. Regis, for example, trades at a P/E of 0.6x far below ULTA's 19.04, but its low valuation reflects structural challenges rather than growth potential. This contrast reinforces ULTA's position as a market leader, albeit one with a valuation that demands robust earnings growth to justify.

Long-Term Growth: Skincare-Driven Momentum

Ulta's long-term appeal lies in its strategic alignment with the skincare segment, which accounts for 40% of the global beauty market and is projected to grow at 4–5% annually through 2030. The company's omnichannel model, private-label brands, and emphasis on high-margin services (e.g., in-store salons) position it to capitalize on this trend. Analysts project 7% annual EPS growth, outpacing the industry's 5% average according to McKinsey, and fiscal 2026 earnings are expected to rebound by 10.8% after a 4% decline in 2025 as reported.

Moreover, Ulta's historical performance-having exceeded earnings estimates in four consecutive quarters-suggests operational resilience. The Zacks Earnings ESP model forecasts a 1.02% positive deviation in Q3 2025 results adding confidence to near-term guidance. These factors, combined with the U.S. beauty market's projected $105 billion revenue in 2025, underscore a durable growth story.

Industry Context: Navigating a Cautious Outlook

The broader beauty industry faces headwinds, including economic uncertainty and shifting consumer preferences toward value-driven purchases according to industry analysis. While the global market is expected to grow at 5% annually through 2030 this moderation from prior 7% growth rates could pressure margins. Ulta's focus on premium skincare and personalized services may insulate it from some of these pressures, but its valuation must contend with a sector where 54% of executives cite uncertain consumer demand as a top risk according to McKinsey.

Conclusion: A Buy for the Patient Investor

Ulta Beauty's valuation is neither a clear bargain nor an obvious overreach. Its P/E ratio is reasonable by historical standards and competitive within the beauty industry, while its PEG ratio remains sensitive to growth assumptions. For long-term investors, the company's leadership in skincare, operational execution, and alignment with a resilient $105 billion U.S. market justify a bullish stance. However, near-term volatility-such as the 12.3% Q3 2025 EPS decline-warrants caution. ULTA is a buy for those with a 3–5 year horizon, provided its growth trajectory remains intact.