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Why Ulta Shares Tumbled

By Jeremy Bowman – Updated Nov 17, 2016 at 4:25PM

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Is this meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ulta Salon (ULTA 0.83%) were getting beaten with the ugly stick today, falling as much as 16% after the beauty products chain provided disappointing guidance in its quarterly report.

So what: Ulta actually beat earnings estimates slightly, posting an EPS of $1.00 against expectations of $0.98, and revenues of $758.8 million were in line with estimates. Sales grew 30.3% in the quarter, though they benefited from an extra week in the quarter, while same-store sales jumped 8%. For the current quarter, Ulta sees sales growth of about 21%, to $568 to $577 million, EPS of $0.60-$0.63, and a comparable sales increase of 4%-6% for both the year and the quarter. Analysts had expected earnings per share of $0.72, however,

Now what: Today's drop seems a little steep, but we've seen this pattern before with high-priced growth stocks. Ulta still carries a high price tag at a P/E of 28, but with 125 new stores planned this year -- a 22% increase in the base -- it would seem to be growing fast enough to justify the markup. Ulta also received a downgrade from Oppenheimer in the wake of yesterday's report, but I'd tend to see today's drop as a buying opportunity. This is a company that expects long-term EPS growth of 25%-30% and seems to have a plan to deliver.

Get more on Ulta. Add the company to your Watchlist by clicking right here.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Ulta Salon, Cosmetics & Fragrance. The Motley Fool owns shares of Ulta Salon, Cosmetics & Fragrance. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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