Motley Fool: Ulta quarterly gains worth investors’ time
It’s all glitter and glam once again for beauty and fragrance retailer Ulta Beauty (Nasdaq: ULTA). Following a very successful first quarter, the company recently reported great second-quarter results, featuring total revenue up 22 percent year over year, revenue from non-new stores up 10 percent and earnings up 34 percent.
Ulta management credits bringing new brands into its stores, while using new ways of gaining even more insight into what customers want. Smart customer engagement in stores and online, in part via an active loyalty program, also helped, with online revenue surging 55 percent. Online initiatives include new online salon booking capabilities, live chats with brand creators, and the release of the company’s first iPad app.
But wait – there’s more! Management upped its 2014 projections and plans to speed up its store openings, expecting 100 new stores each year for the next five years. It’s also remodeling many stores and expanding square footage.
Ulta’s price-to-earnings ratio, near 34, isn’t a low number, but it’s below the company’s five-year average P/E of 36, and not unreasonable for an outfit averaging 20 percent annual revenue growth over the past five years, along with a 44 percent growth rate for earnings. It’s not a slow-and-steady blue chip with a dividend, but for those who can stomach a little risk, ULTA seems to be a beautiful company right now. (The Motley Fool has recommended Ulta.)
Q: I’ve held stock in IBM and eBay for a few years now. IBM offers a dividend, but eBay doesn’t. IBM’s stock hasn’t grown much in the past few years. Would I be better off selling both and putting the proceeds into CDs? – M.E., Carson City, Nevada
A: Don’t dismiss a stock simply because it pays little or no dividend. There are two main ways to make money in stocks: via dividends and stock price appreciation. A company may pay no dividend (often because it’s still trying to grow rapidly and is plowing excess cash back into the business), but its stock price might increase substantially over time, if it’s executing its strategies well.
CDs are fine for short-term savings, but with interest rates so low these days, they won’t make you much richer very quickly. It is smart to sell a stock, though, if you no longer have faith in the company’s future or its management. IBM has been reinventing itself lately, shifting its focus from hardware sales to software and services. (The Motley Fool owns stock in IBM and eBay and has recommended eBay.)
Q: Where can my teens learn about money and investing? – L.D., Muskegon, Michigan
A: They can learn a lot from you, if you discuss your financial practices, experiences and beliefs with them – and then help them start investing in stocks a little. Have them read “The Motley Fool Investment Guide for Teens” by David and Tom Gardner with Selena Maranjian (Touchstone, $16).
Younger kids can read “Growing Money” by Gail Karlitz (Price Stern Sloan, $9) or “Money Sense for Kids” by Hollis Page Harman (Barron’s, $15), while you tackle “Raising Financially Fit Kids” by Joline Godfrey (Ten Speed Press, $20).
My dumbest investment
Barrick Gold has been my worst investment, and now the company cut the dividend, too. Regardless, I will hold. – C.E., Westfield, N.J.
The Fool responds: Barrick Gold has averaged annual losses of 15 percent over the past five years, and has both bulls and bears. Ask yourself why you’re holding: Do you believe the company will perform well going forward? Are you keeping up with its developments? Do you know why it has sunk and cut its payout? Only hold if you understand the situation and have long-term faith.
Saddled with a lot of debt, the gold miner has seen its profit margins and revenue shrink in recent years, and it’s losing money. In response, it has been shedding its non-core assets and restructuring, adding more copper mining to its mix. It experienced a management shakeup, too.
Bulls see plenty of potential and a relatively low price, but skeptical bears are waiting to see management’s latest strategy, and they’d like to see a return to profitability and rising revenue and margins before they consider investing. An increase in the price of gold would help, too.