Ulta Beauty Stock Cools Off Ahead of Earnings

Cosmetics retailer Ulta Beauty, Inc. (NASDAQ:ULTA) is plummeting today, last seen down 3.3% at $388.37. This negative price action comes ahead of the company's third-quarter earnings report, due out after the close on Thursday, Dec. 2. Below, we will dive deeper into the security's recent chart performance, as well as some of its previous post-earnings activity, for clues as to where it may be headed next.

Digging deeper, the security is just now cooling from a Nov. 16, record high of $417.85. The $385 area could contain today's pullback, though, while the 40-day moving is also working as a safety net. Longer term, Ulta Beauty stock still sports a 40.6% year-over-year lead.

ULTA has a positive history of post-earnings reactions, finishing five of eight next-day sessions higher in the last two years, including an 11.1% pop back in December 2019. Options traders are pricing in a 10.4% swing for the security this time around, which is much higher than the 4.9% move it averaged after its last eight reports, regardless of direction.

A shift in the options pits could create additional tailwinds for ULTA. This is per the stock's 10-day put/call volume ratio of 1.28 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits higher than 83% of annual readings. This means puts are getting picked up at a faster-than-usual clip.

Ulta Beauty stock’s bullish run has, in part, been sparked by the company’s 24% revenue and 314% net income growth in the past 12 months. However, the security appears to now be valued very richly at a price-earnings ratio of 30.83, as well as a price-sales ratio of 2.94.

ULTA also has a forward price-earnings ratio of 24.21, which signals an expected jump in earnings, but does not reflect significantly better valuation. Plus, the cosmetic company’s revenues and net income are up just 30% and 31%, respectively, since 2017. This just adds to the notion that ULTA is currently overvalued.