Buying an Ulta share is a game of time

<p>The shares in Ulta Beauty (NASDAQ: ULTA) have recovered from the lowest levels they have reached in broad market sales. Prior to March 18, the Ulta share had fallen almost 50% in March. So, a 20% recovery makes the stock‘s earnings look less bad. But with some stocks showing a positive profit for the year, a decline of 20% is still a decline.

Source: Jonathan Weiss /

For this purpose, the stock appears to have found some resistance of about $ 200. The stock is trading well below its moving average of 50 and 200 days. And with the score 41 on the relative strength index (RSI), the stock may have some room to move up.

But stock market charts are agnostics. And when it comes to Ulta shares, they do not take into account the reality that this is not a regular sale. Because this is not a common crisis. The assumption is that the economy will recover quickly when the crisis is over. But the emotional consequences of coronavirus can be far longer than any directive of protection on the ground.

The biggest fear is the fear itself

As Luke Lango points out, Ulta is relatively walled with coronavirus. The company’s supply chain is mostly located in North America. So when demand returns, the company is in a good position to get up to speed quickly.

But the big unknown is exactly when this crisis will end. And with each passing day, it is more likely that the issue of consumer confidence will not be based on hard science but on emotions, especially fear.

Every day, reporters give figures on the spread of the virus. And the simple reality is that these numbers are likely to continue to rise for several weeks. It may be in mid-April or later before there is evidence that the country is successfully leveling out the curve.

I could talk about the danger of presenting numbers out of context. And it is only logical that the United States would see an explosion of confirmed cases of coronavirus when the test is extended. But at present the big problem is that the higher this number becomes, the more likely it is that our current guidelines for social distancing will expand at the national level.

It creates fear among investors. And the real tragedy is that the human cost of the virus is lost in the legitimate fear of what this crisis will do to the national economy.

Ulta’s e-commerce company can not make the difference

E-commerce accounted for about 12% -13% of Ulta’s sales for 2019. This will undoubtedly increase as the company has closed all its bricks. But the cosmetics sector already showed some softness in the fourth quarter of last year. And that was when the United States was in the middle of a bull market that showed no signs of stopping.

I have known some Mary Kay consultants in my life, so I have no doubt that the company will sell during this time. But many Americans face a significant loss of income indefinitely. So the company will clearly have a hard time predicting how much of the sales it will get back. After all, it seems like toilet paper is going to be more of a premium.

Ulta Stock is a Hold for Now

I have no doubt that Ulta will bounce back. The cosmetics industry is a defensive stock, and Ulta customers will take into account their budgets for the company’s products. And the company’s balance sheet is basically sound. As of their latest earnings report, the company had approximately $ 500 million in cash and short-term investments with little or no debt.

The company will be able to cope with this storm. But when you look at the Ulta share from a technical point of view, it looks like this week’s rally can be as good as it gets, at least until there is more clarity when business will return to normal.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019. At the time of writing, Chris Markoch had no position in any of the above securities.

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