Ulta Beauty ‘s phenomenal uptrend started from $4.11 in March 2009 and did not stop until $368.83 in mid-July 2019. The company’s market value grew by almost 8900% in just ten years, easily earning Ulta a Wall Street darling status.
Unfortunately, Wall Street likes fast-growers only as long as they keep growing. Ulta Beauty reduced its EPS guidance in late-August, reinforcing the Street’s concerns that its growth is slowing, resulting in a 30% crash on August 30th. In total, ULTA stock is down by 38.9% in just two months. A Wall Street darling no more.
Is this a Dip to Buy in Ulta Beauty Stock?
However, despite growing more slowly now, the company is still profitable and debt free. It appears to be just what buy-and-hold investors are usually looking for – a strong business at a decent price. In order to find out if the recent plunge is indeed a buying opportunity, let’s take a look at it from another angle.
The chart above puts Ulta’s entire rally since 2009 in an Elliott Wave context. As visible, the stock spent the past decade drawing a textbook five-wave impulse. The pattern is labeled (1)-(2)-(3)-(4)-(5), where the five sub-waves of wave (3) are also visible and wave (5) is an ending diagonal.
According to the theory, a three-wave correction in the other direction follows every impulse. If this count is correct, the sharp decline we saw in the last two months is part of a larger corrective pullback. Once wave (a) is over, a temporary recovery in wave (b) should occur before the bears complete the sequence in wave (c).
In our opinion, investors have to resist the temptation to buy the dip in Ulta Beauty stock. One day, when wave (c) is approaching its end near ~$160, the stock may become attractive again. We remain on the sidelines until then.
Did you like this analysis? 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!