December 21, 2022 | InsiderSentiment.com Team
Ulta Beauty (NASDAQ: ULTA) is currently priced around $450 and is smashing past analysts' optimistic expectations. Ulta seems to be printing money, even as many believe the US economy is heading towards a historic recession. However, past insider activity has shown top management to be shrewd market timers, and recent trades suggests that the momentum may not continue for Ulta shareholders.
Ulta Beauty is currently riding the waves of outperformed expectations, having delivered Q3 earnings per share of $5.34 and revenues of $2.34 billion when analysts were expecting earnings of $4.20 per share and sales of $2.22 billion. These beaten expectations are more surprising when considering that broad consumer inflation has not caused shoppers to forgo beauty products. Naturally, this has translated to gains in the share price.
Ulta Beauty insiders have created bundles of wealth for shareholders just about any way you look at it. While the stock is only up just over 6% year-to-date, the share price is up over 90% in 5 years and up even longer when zooming out. The stock is currently flirting with all-time highs, having closed at a price of $481.65 earlier this month. The stock price for the past year is shown below:
Looking at the chart above, you can see that Ulta's stock price has turned over slightly from its peak earlier this month. The big question then, is will the price continue marching upward as it's done historically, or does this slight turn suggest a different path? Opinions I've seen are generally bullish. In particular, two analysts quoted in Barron's have price targets above $500, and one has a 12-month target of $535. On the other hand, our current analysis available to subscribers at InsiderSentiment.com shows insiders are already bearish on large cap Consumer Discretionary firms, and it wouldn't be far-fetched to imagine Ulta reverting back to the mean in the short term. We'll now look at some of Ulta's insider activity and try to gain clarity on this issue.
The insider trading activity of Ulta insiders David Kimbell, Kecia Steelman, Anita Ryan, and Scott Settersten is shown below. We'll discuss why we chose these insiders in particular.
From the chart above, we first notice that there are only sales, no purchases, though this is not too unusual to see. Second, we see that these insiders in particular have a strong timing ability, with their sales preceding dips in the stock price. We have noticed this pattern before with certain Crane Holdings (NYSE: CR) insiders as well. Below I've copied the same chart and added arrows showing these dips:
The fact that these insiders trade with such prescience could be due to blind luck, but it could also be a testament to their trading ability, level of information, or some combination thereof. The insiders chosen are all top executives, with Mr. Kimbell acting as CEO, Ms. Steelman is COO, Ms. Ryan is the Chief Human Resource Officer, and Mr. Settersten is the CFO. Hence, it is not unreasonable to conclude that these insiders would be more informed than others, and thus be able to trade with such strong timing.
In addition to the trades from earlier this year that preceded dips in the stock price (indicated with black arrows on the chart), there are also two trades that occurred very recently which you can see on the right side of the chart. Although there has been a slight dip in the stock price since these trades occurred, it is still too early to tell if these trades will be just as well timed as the others and if Ulta's stock experiences a price correction in the near term. We'll now examine these two trades in more detail to see if they support our hypothesis.
The first trade occurred on December 7th, when Ms. Steelman exercised options to acquire 8,518 shares which she then sold at the market price of nearly $477. Then on December 13th, Mr. Kimbell exercised options to acquire 11,489 shares which he sold for approximately $467 each. You can tell from the prices that both insiders sold very close to the top.
In addition to their high sale price, both executive sold large numbers of shares relative to their prior holdings. Before making the trade, Ms. Steelman was in possession of 20,560 shares, while Mr. Kimbell held 53,401 shares. This means that the single day trades liquidated shares amounting to 41% of shares held prior by Ms. Steelman, and almost 22% for Mr. Kimbell. In total, the shares sold by these two from these single-day trades represented over $9.4 million in value. These facts give additional weight to the information contained in these trades, and further suggest that recent insider activity from Ulta management will be followed by similar downward movements as the prior trades.
While we are personally taking note of Ulta Beauty's seemingly recession-proof qualities (so far) for potential business ideas in the future, insider activity from top management suggests the peak may be in at least for the short term, if strong timing from prior trades carries over. We eagerly await to see how it unfolds.
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