Buying shares in a beauty retailer in March 2020 sounded like a crazy, stupid idea. Stock markets around the world were plunging at a record pace amid a global GDP crash resulting from government-enforced lockdowns. People were stockpiling necessities in preparations not to leave their homes in the foreseeable future. With COVID-19 cases rising everywhere, going to a beauty store was the last thing on their minds. Ulta Beauty, in particular, had just announced the temporary closing of all of its stores as a precautionary measure.
Yet, years of experience had taught us that the market is a forward-looking creature. Regardless of how bleak the situation may seem at the moment, as long as the world didn’t actually end, a recovery can always be expected. Ulta Beauty was down 59% in just a month. However, it had plenty of cash on hand and no debt, so we didn’t have to worry about the company’s survival. The chart below, shared with our readers on March 22nd, 2020, suggested this was not the time to throw in the towel.
In fact, the coronavirus crash looked like a buying opportunity. Ulta ‘s weekly chart revealed a textbook 5-3 Elliott Wave cycle. The setup consisted of a five-wave impulse, labeled (1)-(2)-(3)-(4)-(5), and a simple (a)-(b)-(c) correction. According to the theory, once a correction is over, the trend resumes in the direction of the preceding impulse.
Buying Ulta Beauty at the Point of Maximum Pessimism Pays Off
With that in mind, we concluded that “a bullish reversal can soon be expected in Ulta Beauty stock.” Little did we know that the stock had already bottomed a few days earlier. It was the closest thing to picking a bottom one can possibly hope for.
Ulta Beauty stock started rising at a time when the world seemed to be falling apart. Fast-forward to August 2021, we see that things have worked out quite well for the bulls. Yesterday, the price reached a new all-time high of $372, exceeding its previous record of $368.83 set in July, 2019.
The company is expected to match its pre-pandemic earnings this year and keep growing the next. Judging from its stock price, the market seems to have already known that. Investors who didn’t buy at the point of maximum pessimism and instead waited for things to improve missed out on a nice gain. Ulta Beauty stock is up 151% since our March 2020 article. Even though we think there is still more upside left, paying 30 times forward earnings for the stock now is not something we would recommend.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!