Warren Buffett’s Berkshire Hathaway recently issued a new stake in cosmetics retailer Ulta Beauty, a deep value bet that confirmed the notion that the stock was significantly oversold. The Omaha-based conglomerate revealed a $266 million bet on Ulta Beauty in a regulatory filing late Wednesday, sending shares up 11% the next day. Many view the purchase as a classic value buy after the beauty supply chain’s stock suffered a major sell-off this year amid falling demand and increasing competition. “We view this development as a vote of confidence in the company’s longer-term prospects and further validation of ULTA’s significantly discounted valuation,” Oppenheimer analyst Rupesh Parikh said in a note. ULTA YTD will drive Ulta Beauty shares higher in 2024. Before Buffett’s purchase sent the stock soaring, Ulta had fallen 32% in 2024 and was trading at just 12 times forward earnings, according to FactSet. After falling 26% in the second quarter alone, the stock has lost another 15% since late June as the retailer warned of slowing beauty demand. Meanwhile, other retailers, including Macy’s and Kohl’s, are trying to spur sales growth by expanding their focus on beauty products. “I can’t believe how cheap Ulta has become, and this is a company that’s growing sales at 20%… it’s just stumbled a little bit,” Stephanie Link, chief investment strategist and portfolio manager at Hightower Advisors, said Thursday on CNBC’s “Squawk Box.” “I could never own Ulta because it was always so expensive, but it really lost value.” Given Ulta’s relatively small size, there is widespread speculation on Wall Street that one of Buffett’s acolytes, Ted Weschler and Todd Combs, was responsible for the purchase of Ulta. The two managers, who share Buffett’s value investing philosophy, each manage about $15 billion of Berkshire’s equity portfolio, which is now worth well over $300 billion. Berkshire has successfully invested in consumer-focused companies for decades, including long-standing holdings Coca-Cola and Kraft Heinz, and more recent purchases Kroger and Floor & Decor.
