Was The Smart Money Right About Ulta Beauty (ULTA)?

Before we spend countless hours researching a company, we like to analyze what insiders, hedge funds and billionaire investors think of the stock first. This is a necessary first step in our investment process because our research has shown that the elite investors’ consensus returns have been exceptional. In the following paragraphs, we find out what the billionaire investors and hedge funds think of Ulta Beauty, Inc. (NASDAQ:ULTA).

Ulta Beauty, Inc. (NASDAQ:ULTA) has seen an increase in hedge fund interest lately. Ulta Beauty, Inc. (NASDAQ:ULTA) was in 43 hedge funds’ portfolios at the end of the fourth quarter of 2020. The all time high for this statistic is 46. There were 31 hedge funds in our database with ULTA positions at the end of the third quarter. Our calculations also showed that ULTA isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings).

Why do we pay any attention at all to hedge fund sentiment? Our research has shown that a select group of hedge fund holdings outperformed the S&P 500 ETFs by 124 percentage points since March 2017 (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Kerr Neilson of Platinum Asset Management

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s review the fresh hedge fund action surrounding Ulta Beauty, Inc. (NASDAQ:ULTA).

Do Hedge Funds Think ULTA Is A Good Stock To Buy Now?

At the end of the fourth quarter, a total of 43 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 39% from the previous quarter. On the other hand, there were a total of 41 hedge funds with a bullish position in ULTA a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Select Equity Group was the largest shareholder of Ulta Beauty, Inc. (NASDAQ:ULTA), with a stake worth $586.2 million reported as of the end of December. Trailing Select Equity Group was Holocene Advisors, which amassed a stake valued at $181.1 million. Two Creeks Capital Management, Junto Capital Management, and Platinum Asset Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kettle Hill Capital Management allocated the biggest weight to Ulta Beauty, Inc. (NASDAQ:ULTA), around 4.81% of its 13F portfolio. Teewinot Capital Advisers is also relatively very bullish on the stock, dishing out 4.81 percent of its 13F equity portfolio to ULTA.

As aggregate interest increased, key hedge funds were leading the bulls’ herd. Junto Capital Management, managed by James Parsons, created the largest position in Ulta Beauty, Inc. (NASDAQ:ULTA). Junto Capital Management had $62.7 million invested in the company at the end of the quarter. Dmitry Balyasny’s Balyasny Asset Management also initiated a $45.1 million position during the quarter. The following funds were also among the new ULTA investors: Jack Woodruff’s Candlestick Capital Management, Steven Boyd’s Armistice Capital, and Sahm Adrangi’s Kerrisdale Capital.

Let’s now take a look at hedge fund activity in other stocks similar to Ulta Beauty, Inc. (NASDAQ:ULTA). These stocks are Steris Plc (NYSE:STE), Horizon Therapeutics Public Limited Company (NASDAQ:HZNP), Occidental Petroleum Corporation (NYSE:OXY), Expeditors International of Washington, Inc. (NASDAQ:EXPD), PerkinElmer, Inc. (NYSE:PKI), Quest Diagnostics Incorporated (NYSE:DGX), and Nucor Corporation (NYSE:NUE). All of these stocks’ market caps are similar to ULTA’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
STE 36 784186 6
HZNP 55 3793427 -6
OXY 49 2151233 6
EXPD 25 477813 -6
PKI 31 1978722 -5
DGX 45 531778 3
NUE 29 138612 1
Average 38.6 1407967 -0.1

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $1408 million. That figure was $1341 million in ULTA’s case. Horizon Therapeutics Public Limited Company (NASDAQ:HZNP) is the most popular stock in this table. On the other hand Expeditors International of Washington (NASDAQ:EXPD) is the least popular one with only 25 bullish hedge fund positions. Ulta Beauty, Inc. (NASDAQ:ULTA) is not the most popular stock in this group but hedge fund interest is still above average. Our overall hedge fund sentiment score for ULTA is 68. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. Our calculations showed that top 10 most popular stocks among hedge funds returned 90.7% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 35 percentage points. These stocks gained 13.6% in 2021 through April 30th and still beat the market by 1.6 percentage points. Hedge funds were also right about betting on ULTA as the stock returned 14.7% since the end of Q4 (through 4/30) and outperformed the market. Hedge funds were rewarded for their relative bullishness.

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Disclosure: None. This article was originally published at Insider Monkey.