Ulta Beauty Stock Has Been Hot, and Options Traders See More Upside

Analysts are growing more bullish, too

Josh Selway
Jan 11, 2018 at 3:09 PM
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Ulta Beauty Inc (NASDAQ:ULTA) pulled back sharply in the latter half of 2017 following its June record high of $314.86, eventually bottoming at $187.96 in mid-October. But since then, the shares have been in a channel of higher highs and lows, last seen trading at $232.37. Part of the outperformance so far in 2018 has been due to bullish analyst attention, but historical data also shows ULTA stock generally picks up steam around this time, regardless.

For example, the security has closed the first quarter in positive territory in each of the past four years, including a nearly 12% surge last year. Digging even deeper, Ulta Beauty has been one of the best stocks to buy ahead of the Martin Luther King Jr. holiday over the past 10 years. According to data from Schaeffer's Senior Quantitative Analyst Rocky White, the shares have gained an average of 4.71% for the week during that span, ending in the black 80% of the time.

As alluded to, a number of analysts have been calling for more upside. Wells Fargo this morning boosted its price target to $297 from $275, just a week after it upgraded the stock to "outperform." And yesterday, Oppenheimer lifted its target price by $30, setting the bar at $240. If ULTA keeps pushing higher on the charts, there's room for even more bullish attention, since eight analysts still have "hold" ratings in place.

Options data paints a bullish picture, as well. The equity has a 10-day call/put volume ratio of 2.22 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which tops 95% of comparable readings from the past year. So, not only has call buying more than doubled put buying in recent weeks, such a preference for calls over puts is very unusual.

In fact, the top four largest increases in open interest during this time were all on calls, with the April 260 strike leading the way. Data from the major options exchanges shows almost exclusive buy-to-open activity here, so options traders have been wagering Ulta Beauty stock will rally above $260 in the coming months.

It's become much more pricey to buy calls compared to puts, however. This is according to ULTA's 30-day implied volatility skew of 5.3%, which lands in the low 9th annual percentile. Still, calls are outpacing puts once again in today's trading.


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