Goldman Sachs Group, Inc. (GS): Is Ulta Salon, Cosmetics & Fragrance, Inc. (ULTA) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

ulta-logo

What we’re looking for
The graphs you’re about to see tell Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s story, and we’ll be grading the quality of that story in several ways:

Growth: Are profits, margins, and free cash flow all increasing?

Valuation: Is share price growing in line with earnings per share?

Opportunities: Is return on equity increasing while debt to equity declines?

Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA)’s key statistics:

ULTA Total Return Price Chart

ULTA Total Return Price data by YCharts.

Passing Criteria 3-Year* Change Grade
Revenue growth >30% 82.8% Pass
Improving profit margin 104.2% Pass
Free cash flow growth >Net income growth (37.3%) vs. 273.2% Fail
Improving EPS 242.8% Pass
Stock growth (+ 15%) <EPS growth 311.3% vs. 242.8% Fail

Source: YCharts. * Period begins at end of Q2 (April) 2010.

ULTA Return on Equity Chart

ULTA Return on Equity data by YCharts.

Passing Criteria 3-Year* Change Grade
Improving return on equity 43.9% Pass
Declining debt to equity No debt Pass

Source: YCharts. * Period begins at end of Q2 (April) 2010.

How we got here and where we’re going
Ulta could use a little touch-up on its free cash flow, which has been stuck in neutral for years as earnings have soared. The company’s flying share price has also cost it a passing grade by getting too far ahead of the growth in its earnings. However, Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) still mustered five out of seven passing grades, which is a strong showing — we can’t grade the company on dividends, as it only made one special payout a year ago. What can this salon supplier do to get itself a perfect score next time? Let’s dig a little deeper.