In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Matt Argersinger, David Kretzmann of Motley Fool Rule Breakers and Supernova, and Total Income's Ron Gross look at Ulta Beauty's (NASDAQ:ULTA) Q3 sales and earnings figures, which were up strongly across the board, and try to tease out the logic behind the share price drop that followed the retailer's report. Did this dip create a buying opportunity?

A full transcript follows the video.

This video was recorded on Dec. 1, 2017.

Chris Hill: Shares Ulta Beauty getting hit on Friday. Third quarter profits looked pretty good, David, but guidance for Ulta Beauty's fourth quarter had some investors headed for the exits.

David Kretzmann: Well, they maintained the same guidance, so I think some investors might have been expecting them to raise their guidance. But, take a step back and look here. Sales up 19%. Same-store sales up 10.3%. E-commerce up 63%. Earnings per share up 21%. Their rewards, the number of awards members grew 21%, over 26 million members. As far as retailers go, it's hard to find better numbers than what Ulta has put up pretty consistently over the past several years. I think a lot of investors were looking for something bad in this report. And if there was one yellow flag, the gross margin dropped year over year just slightly, about 1%. So, perhaps some discounting there, you see some department stores like Macy's and Kohl's offering more discounting with makeup and cosmetics, which is obviously Ulta's bread and butter. But, looking at 2014 to 2015, we essentially had the same thing happen in the same third-quarter period at Ulta, and since that point, obviously the company has done just fine. So, I wouldn't get too worried. Obviously, if it became a trend over the next few quarters, maybe something to worry about. But at this point, the company is just clicking in all the right places.

Ron Gross: But I would be careful, when you see a company, I want to say they're trading at around 40X trailing earnings --

Kretzmann: It's actually down to 26-27X. Still premium.

Gross: OK. Still a premium, but not nearly around 40. So, that's good to know. Again, this is not a high-tech company that's changing the world. It's a retailer. And the second they start to put up either weaker gross margins or slower store count or guidance starts to trail down, the stock is going to get sold off, so you just have to be careful.

Hill: And the stock has been sold off, and it's down about 20% year-to-date. Even with the metrics you mentioned, David, is this a buying opportunity? Or do you want to see one more quarter to see if what we just saw was a little bit of speed bump or a trend?

Kretzmann: I would lean toward this being a buying opportunity. I think, given the numbers that they're putting up, it is worth the premium valuation, but the valuation is still above the market multiple, and for a retailer, that's lofty. So, expect volatility. But, I think over the next three to five years, this beats the market.

Chris Hill has no position in any of the stocks mentioned. David Kretzmann owns shares of Ulta Beauty. Matthew Argersinger has no position in any of the stocks mentioned. Ron Gross has no position in any of the stocks mentioned. The Motley Fool recommends Ulta Beauty. The Motley Fool has a disclosure policy.