In a year when so many stocks have been dragged down by the bear market, it's a pleasant surprise to find a business that has not only beaten the market but is actually up for the year. That's exactly what we have with Ulta Beauty (ULTA 2.76%).

Year to date, Ulta is up 14% while the S&P 500 is down 15%. If we zoom out, the numbers are even more impressive. Since its debut on the public markets, Ulta has outpaced the S&P 500 by more than 1,300%. 

These results could make investors think they've missed the boat on this stock, but that's not the case.

Creating an omnichannel experience

Ulta Beauty is a retailer targeting its cosmetics products toward customers who could be described as beauty enthusiasts. According to the company, this category includes 60% of all female beauty-product buyers and 78% of Gen Z beauty buyers. It has built its business around these shoppers since they represent the majority of spending in the beauty category.

Like most companies, Ulta has a robust digital platform for those who prefer shopping online. While some assistance and consultation is available there, many customers still prefer shopping for beauty products in person. For them, the company has two brick-and-mortar options.

It has more than 1,300 stores in high-traffic areas. In addition, it recently signed an agreement with Target to put Ulta Beauty stores within more than 100 Target locations. 

A loyalty program drives spending

Besides its omnichannel options, the company drives growth through its loyalty program, Ulta Rewards. In the fiscal third quarter, the program reached 39 million members, up 9% year over year. These members are vitally important to the business, because approximately 95% of total sales are made to loyalty members. 

The overall spend of loyalty members increased through both higher sales per transaction and more frequent transactions last quarter. As with any loyalty program, Ulta Rewards also provides the company with useful customer data, which can then be used to provide targeted marketing to further drive sales. Management has pointed to this program as being an important driver of long-term growth. 

Continued strong results

When Ulta beauty reported its fiscal third-quarter results on Dec. 1, almost every important metric showed year-over-year growth. 


Q3 2021

Q3 2022

YOY Change


$2.0 billion

$2.3 billion


Gross margin



160 bps

Operating income

$284 million

$362 million


Net income

$215 million

$275 million


Earnings per share




Data source: Ulta Beauty. BPS = basis points.

These are strong results, especially considering inflation's impact on discretionary spending. Ulta's comparable-store sales (comps) for the quarter were up 14.6%. While impressive, this was a significant decrease from the 25.8% comps growth reported in the prior-year quarter.

Management mentioned price increases as boosting results this quarter, showing Ulta's ability to pass price increases along to customers without hurting sales. Management expects this growth to continue, and it raised the company's full-year fiscal 2022 guidance for revenue, comparable sales, operating margin, and earnings per share.

Is Ulta Beauty a buy in 2023?

The results from the most recent quarter continue a pattern of strong performance for Ulta, and it's been rewarded with a market-beating return. One might think the long-term share price appreciation means investors have missed the boat on the stock, or that it's overvalued. A closer look at valuation tells a different story.

Ulta's price-to-sales (P/S) ratio is 2.5 and its price-to-earnings (P/E) is 20.7. On the surface, it would be difficult to call Ulta cheap, but comparatively, the valuation is very fair considering the strong business results.

ULTA PS Ratio Chart

Data by YCharts.

As the chart shows, Ulta is near or below its five-year average for both valuation metrics. And over that same time frame, it has grown its revenue 65%, its net income 115%, and its free cash flow 181%. So despite this impressive growth, the company is still valued at the same multiple or less.

Investors shouldn't let Ulta's strong 2022 deter them from buying shares. There's reason to believe the company's outperformance can continue going forward, and the valuation is more than reasonable in that context.