Ulta Beauty (ULTA -0.74%) stock got a facelift Thursday after The Wall Street Journal reported that mega-investor Warren Buffett has taken an interest in the company. Citing public filings, the Journal noted that Buffett's Berkshire Hathaway (BRK.A -0.16%) (BRK.B 0.11%) has acquired 690,106 Ulta shares since making its last 13F filing with the Securities and Exchange Commission.
What's Buffett up to?
According to the Journal, Buffett's Ulta stake was worth $266 million at the end of June, when the stock cost roughly $380. Unfortunately for Buffett, Ulta stock proceeded to fall toward $320 -- but it's looking a lot better now.
As news of the billionaire's interest spread today, shares of the cosmetics company soared about 12% through 12:40 p.m. ET. At $368 and change, Ulta stock still isn't worth what Buffett paid for it, but it's getting close to breakeven.
Is Ulta stock a buy?
Now the question is whether Ulta's stock price can sustain the windfall momentum provided by today's news. The answer to that question is -- maybe.
Last-quarter's earnings report wasn't terribly encouraging. Ulta experienced only 3.4% sales growth when it reported fiscal Q1 2024 earnings in May, and half that growth came from new store openings. Same-store sales at the retailer grew only 1.6%. Even worse, per-share profits dropped 6% -- the opposite direction you'd expect with growing sales. The reason for this was that operating profit margins contracted by 210 basis points, falling to 14.7%.
Ulta responded to the bad news by lowering total sales guidance for the full year and cutting same-store sales guidance nearly in half, to about 2.5%. Again, news about profits was even worse: Ulta forecast that operating profit margins will continue to erode and probably fall to 14% or lower.
On the plus side, Ulta insists it's still planning to spend $1 billion buying back shares this year, so management must agree with Buffett that the stock is undervalued. Ulta stock cost only 12.5x earnings today, so they may both be right.
