What Happened:
Shares of beauty, cosmetics, and personal care retailer Ulta Beauty (NASDAQ:ULTA) jumped 15.1% in the morning session after Warren Buffett's Berkshire Hathaway revealed a stake of 690K shares of Ulta valued at ~$266 million in its Q2 2024 13-F filing. Given the legendary investor's reputation for identifying quality opportunities in the stock market, the market is likely to read the information positively for the company's prospects in the near term.
The sentiment was also supported by Walmart's strong earnings outperformance and sales outlook for the rest of the year, which indicated a healthy spending pattern for the U.S. consumer.
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What is the market telling us:
Ulta’s shares are not very volatile than the market average and over the last year have had only 4 moves greater than 5%. Moves this big are very rare for Ulta and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The previous big move we wrote about was 22 days ago, when the company dropped 6.1% on the news that Piper Sandler analyst Korinne Wolfmeyer downgraded the stock's rating from Overweight to Neutral and lowered the price target from $494 to $404, citing profitability concerns due to "increased promotions and slower sales."
The analyst added, "We believe a rather lackluster long range plan come October [investor day] is probable, which could leave shares range-bound."
However, Wolfmeyer also clarified that "the downgrade is not a call to sell into the FQ2 print or the October investor day, but a view that it might take beyond the next 12 months to get share re-ignited."
Ulta is down 24.7% since the beginning of the year, and at $366.33 per share it is trading 35.4% below its 52-week high of $567.18 from March 2024. Investors who bought $1,000 worth of Ulta’s shares 5 years ago would now be looking at an investment worth $1,143.
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