Warren Buffett’s Berkshire Hathaway is giving beauty retailer Ulta a “big stamp of approval.”

Berkshire Hathaway (BRK-B, BRK-A) is betting on Ulta Beauty (ULTA).

On Wednesday, the Warren Buffett-led conglomerate disclosed in a regulatory filing that it bought 690,106 shares in the beauty retailer in the second quarter, worth about $266 million at the end of June. Shares of Ulta rose 11% on Thursday and continued to rise on Friday, up 14.6% since Berkshire disclosed its holdings.

The move is “a big stamp of approval,” BMO Capital Markets managing director and senior analyst Simeon Siegel told Yahoo Finance. “The beauty category has always been an attractive category.”

In addition to taking a stake in Ulta, Berkshire Hathaway added aerospace manufacturing company Heico ( HEI ) to its holdings and exited positions in Snowflake ( SNOW ) and Paramount ( PARA ). Berkshire also shorted shares of Apple (AAPL), among other names.

However, Berkshire’s stake in Ulta came as a surprise. Still, the stock has had a rough year so far, which might have made it more attractive in line with Buffett’s value-oriented investment philosophy. The retailer’s shares are down 23% since the start of the year.

“Warren Buffett is almost like the original value investor, and I think that’s how they viewed it,” said Loop Capital Markets managing director Anthony Chukumba, who has a Buy rating on Ulta shares. “We like the fact that Berkshire has gotten involved in equities. It certainly lends credibility to the story.”

Ulta’s Slowdown Fears

Ulta is one of the largest beauty retailers in the US and is set to expand into Mexico in 2025. In its most recent quarter, the company grew sales 3.5% year-over-year to $2.7 billion , continuing a strong upward trend and general resistance. in the beauty industry.

However, on April 2, Ulta Beauty CEO Dave Kimbell warned investors of “a slowdown in the overall category across price points and segments.”

That prompted a selloff in the stock, reflecting investor fears of declining sales and increased competition from Sephora and Amazon ( AMZN ), particularly in the high-end beauty segment.

According to Chukumba, those concerns seem “overblown.”

“Ulta has a great model,” he continued. “They have a completely debt-free balance sheet. They’re generating a lot of free cash flow. They’re buying shares pretty aggressively. I think they’re going to initiate a dividend later this year, which will open up the stock to income investors. Also.”

Siegel wondered if Ulta is a healthy but more mature business or if it is saturated and no longer able to sustain its growth story.

The story continues

“Ulta and Sephora have revolutionized the way consumers shop for beauty over the past 15 years,” said Siegel. “The business has dramatically … taken share away from department stores in favor of specialty beauty retailers, which are predominantly Ulta and Sephora. They’ve done a phenomenal job.”

However, “Ulta has now evolved or entered the next step of its maturity,” Siegel continued. “It’s not growing at the same level it used to.”

He added that it will be up to management to prove to shareholders that it can still grow.

In May, CEO Kimbell told shareholders: “I remain confident in our differentiated model, the resilience of the beauty category and our ability to deliver on our plans, but we have adjusted our full-year guidance as we anticipate the dynamics with which we faced each other in the first. the quarter will continue for the balance of the year.”

Kimbell said the company will share more details at its investor day in October about its plan to drive long-term stock growth.

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