Undervalued Stocks to Watch: Ulta Beauty, Adobe, and Sprouts Farmers Market

Ulta Beauty, Adobe, and Sprouts Farmers Market are undervalued stocks with strong business models and high returns on capital. Ulta trades at a forward P/E ratio of 19.7x, significantly lower than historical levels, despite the company's favorable pricing power dynamics and gross profit margins reaching 42.7%. The return on invested capital (ROIC) rate for Ulta's business is 26.8%, consistently aligning with annual stock price performance. These factors create an asymmetric upside opportunity for investors.

Ulta Beauty, Inc. (ULTA), a leading retailer of beauty products, has recently caught the attention of investors due to its undervalued stock price and robust business fundamentals. As of July 9, 2025, ULTA trades at $475.57, with a forward P/E ratio of 19.7x, significantly lower than historical levels. Despite this, the company's favorable pricing power dynamics and gross profit margins reaching 42.7% indicate strong financial health.

One of the key metrics that highlights ULTA's strong performance is its return on invested capital (ROIC), which stands at 26.8%. This high ROIC rate consistently aligns with the company's annual stock price performance, suggesting a strong track record of profitability and efficient capital allocation. Additionally, ULTA's debt to equity ratio of 1.46 indicates a manageable level of leverage, which further supports its financial stability.

Moreover, ULTA's operating cash flow of $1.40B is sufficient to service its debt of $1.98B, ensuring adequate liquidity to meet financial obligations. The company's operating margins have also shown resilience, with a profit margin of 10.4% over the past year. This consistency in profitability is a testament to ULTA's ability to generate earnings even in challenging market conditions.

ULTA's expansion into new markets, such as its recent acquisition of Space NK, also presents growth opportunities. By entering the UK market, ULTA aims to tap into a new customer base and diversify its revenue streams. This strategic move aligns with the company's long-term growth strategy and underscores its commitment to market expansion.

In conclusion, ULta Beauty, Inc. (ULTA) presents an attractive investment opportunity for those seeking undervalued stocks with strong business models and high returns on capital. With a forward P/E ratio significantly lower than historical levels, favorable pricing power dynamics, and consistent profitability, ULTA offers an asymmetric upside opportunity for investors.

References:
[1] https://www.wallstreetzen.com/stocks/us/nasdaq/ulta