What to Make of Ulta Beauty Stock After the Target Link Up

Ulta's earnings are due out on December 3

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Ulta Beauty, Inc. (NASDAQ:ULTA) is the largest beauty retail chain in the United States. The company sells cosmetics, fragrances, skin care products, hair care products and salon services across its 1,196 stores in all 50 states. Ulta Beauty was one of the first major brick-and-mortar businesses to close its store locations as a result of the coronavirus pandemic and, consequently, took some incredible losses earlier this year. Fast forward to November and the company continues to look toward a full recovery with the announcement of a new partnership with Target (TGT).

So far this year, Ulta Beauty stock held onto its 10% year-to-date level. The shares have more than doubled off their five-year peak-pandemic lows, with a floor emerging at the round $200 level. After bouncing from this level earlier in the month after the Target news, ULTA's ascending 10-day moving average has guided the stock higher.

Ulta Beauty is set to report earnings on December 3, 2020 after the close. In the company's past four earnings reports over the past 12 months, Ulta Beauty has beat expectations three times. In the fourth quarter of 2019, Ulta Beauty beat expectations by $0.12. In the first quarter of 2020, the company beat expectations by a margin of $0.16. The earnings target miss occurred when the company saw a drastic decline in the second quarter of 2020, coinciding with the shutdowns surrounding the pandemic. In Ulta Beauty's most recent quarter, the company beat its earnings target by $0.67 (+1117%). For its upcoming earnings report, the company is expected to report an EPS of $1.44 on Ulta Beauty stock.

Prior to the pandemic Ulta Beauty managed to string together quite a few years of consistent net income and revenue growth. The company demonstrated steady growth between 2016 and 2020. However, the pandemic put a temporary yet severe dent in the company’s net profit streak. Nonetheless, Ulta Beauty has begun to recover since its reported net losses in the second quarter of 2020. The company has shown initiative to not only to recover post-pandemic, but to push its revenue growth to new highs with the Target deal and Kylie Jenner partnership as two prime examples.

ULTA currently trades at a high price-earnings ratio of 56.43. However, Ulta Beauty stock also has forward price-earnings ratio of 21.79, which is much more promising for potential investors. The company has an average balance sheet with $1.16 billion in cash and $2.76 billion in total debt. Overall, Ulta Beauty seems to be shaping up to be an unexpected growth play. The company already controls a good portion of the sector's market share, but could see further expansion with this new Target partnership.

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