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Ulta Beauty (ULTA) is the leading cosmetics retailer in the country. They had 1473 stores as of August 2, 2025 and a market cap of $24 billion as of the close on Wednesday November 26.

I bought it in the February-March time frame earlier this year for an average price of $328. At that time, it was cheap on a P/E basis, I thought it was a high quality business and so I initiated a position.

However, since then the stock has been on a tear, closing Wednesday at $535 – up 63% from my average entry price. The P/E multiple on current year EPS guidance is 22x. In other words, it’s no longer a cheap stock. But I’m going to hold it through earnings next Thursday afternoon. Why?

Even though I wouldn’t be surprised to see a correction from these levels, the stock hasn’t gotten so expensive that it’s a sell IMO. It’s fully valued to slightly overvalued at its current price IMO. But I’m sitting on a big gain and it hasn’t been a year so a sale would mean the short term capital gains rate. But the most important reason I’m going to hold the stock is that I believe in ULTA’s growth runway over the long term.

The case for ULTA for the long term was nicely laid out in their Investor Presentation from September 15. It’s an 18 page PDF that is very easy to read and I encourage investors or those of you interested in the stock to take a look.

Page 5 illustrates their proven track record over the last 10 years. Net Sales, Operating Profit and EPS have Compound Annual Growth Rates (CAGR) of 13%, 14% and 20%, respectively.

Page 8 estimates the beauty industry market to have been $118 billion in 2024 – up from $89 billion in 2019. The beauty market will continue to grow going forward which is a wind at ULTA’s back. ULTA estimates itself as having a 9% market share.

On Page 17, ULTA outlines their long term financial targets. They see Net Sales growth of 4-6%, mid-single digit Operating Income growth and low double digit EPS growth.

In conclusion, while I no longer love the valuation, ULTA is the leading player in a growing industry and I therefore expect it to be able to continue to grow its business and compound earnings nicely in the years to come. I probably wouldn’t initiate a position here but I see a higher stock price over the long term so I’ll hold on.

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