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If You Own Ulta Beauty (ULTA) Stock, Sell It Now

If you are looking for the best ideas for your portfolio you may want to consider some of Wedgewood Partners top stock picks. Wedgewood Partners, an investment management firm, is bearish on Ulta Beauty Inc. (NASDAQ:ULTA) stock. In its Q4 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Ulta Beauty Inc. (NASDAQ:ULTA) stock. Ulta Beauty Inc. (NASDAQ:ULTA) is a beauty salon company. The stock is down 31.1% since the Wedgewood Partners pitch in January 2020, which suggests the investment firm was right in its decision.

On January 13, 2020, Wedgewood Partners had released its Q4 2019 Investor Letter. Wedgewood said that Ulta Beauty Inc. (NASDAQ:ULTA) was a top detractor to its performance during the fourth quarter of 2019. FUlta Beauty Inc. (NASDAQ:ULTA) stock negatively impacted Wedgewood’s return by 0.05% in the fourth quarter of 2019.

Wedgewood believes that Ulta Beauty Inc. (NASDAQ:ULTA) faces a tough time ahead as it is likely that the company would incur higher expenses despite decline in its sales. As a result, the company's would be hampered.

For the quarter ended December 31st, 2019, Wedgewood Partners fund recorded a return of 9.57%, compared to 10.62% of  Russell 1000 Growth Index and 9.07% of S&P 500 Index. This brings its 2019 full-year return to 31.96%, compared to 36.39% of  Russell 1000 Growth Index and 31.49% of S&P 500 Index.

Let’s take a look at comments made by Wedgewood about Ulta Beauty Inc. (NASDAQ:ULTA) in the letter.

"Ulta Beauty reported a slowdown in sales growth, particularly in its core U.S. cosmetics business, which management attributed to a decline in the overall U.S. cosmetics category. While the U.S. cosmetics industry is not likely to shrink in perpetuity, we think Ulta’s expense structure is ill-suited to handle slower growth and expect returns will suffer as the business is reset to slower growth."

In Q1 2020, the number of bullish hedge fund positions on Ulta Beauty Inc. (NASDAQ:ULTA) stock increased by about 12% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with Ulta Beauty's downside potential. Our calculations showed that Ulta Beauty Inc. (NASDAQ:ULTA) isn't ranked among the 30 most popular stocks among hedge funds.

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