The impact would not be significant. Yes, there would be fewer shares, but at the same time, there would be less cash in the company. These two would offset each other.
For a company like ULTA, I would assume a 5-6% sales growth rate with all free cash flow (FCF) returned to shareholders through stock buybacks (5% yield as of now) and a slight multiple expansion to a P/E of 20. This leads me to estimate a total return of around 12% CAGR over 5 years.
If the company decides to heavily focus on international expansion, resulting in a significant increase in growth CapEx, the reinvestment rate and return on invested capital (ROIC) would become more relevant metrics for projecting future growth. Assuming they can reinvest half of their operating cash flows at their current ROIC, though I am not entirely convinced they will be able to, there is still significant upside potential left on the table
It's my second largest position, and it was interesting to read. On inflation and consumers cutting back, there is a point there. However, it is interesting to look at the growth of the beauty industry over the last couple decades. If i remember correctly, growth was negative only one or two years since early 2000s. Beauty is as essential as bread for women. My wife is fairly moderate when it comes to these products, I believe, but no matter my efforts, there are always small bottles and containers in the counter. I am still confident in the overall thesis that made me invest in ULTA.
Thank you for sharing Joel, and I wish you lots of success with your position.
If I may ask, what do you think impacts the growth in the industry? Is it increase in the number of customers, inflation, or the average customer is buying more?
Great read, Kostadin!
Thank you!
Very interesting Kostadin 🤔
I think for a company like Ulta, you should also factor in the share repurchases into the overall IRR.
The impact would not be significant. Yes, there would be fewer shares, but at the same time, there would be less cash in the company. These two would offset each other.
For a company like ULTA, I would assume a 5-6% sales growth rate with all free cash flow (FCF) returned to shareholders through stock buybacks (5% yield as of now) and a slight multiple expansion to a P/E of 20. This leads me to estimate a total return of around 12% CAGR over 5 years.
If the company decides to heavily focus on international expansion, resulting in a significant increase in growth CapEx, the reinvestment rate and return on invested capital (ROIC) would become more relevant metrics for projecting future growth. Assuming they can reinvest half of their operating cash flows at their current ROIC, though I am not entirely convinced they will be able to, there is still significant upside potential left on the table
It's my second largest position, and it was interesting to read. On inflation and consumers cutting back, there is a point there. However, it is interesting to look at the growth of the beauty industry over the last couple decades. If i remember correctly, growth was negative only one or two years since early 2000s. Beauty is as essential as bread for women. My wife is fairly moderate when it comes to these products, I believe, but no matter my efforts, there are always small bottles and containers in the counter. I am still confident in the overall thesis that made me invest in ULTA.
Thank you for sharing Joel, and I wish you lots of success with your position.
If I may ask, what do you think impacts the growth in the industry? Is it increase in the number of customers, inflation, or the average customer is buying more?