I think I like Ulta Beauty (ULTA) . Don't get me wrong. This name will trade at a discount this morning after posting the firm's Q3 results on Thursday evening, and the discount will be greater than what a down opening across the broader marketplace offers. Honestly, the name is still expensive in my opinion, but a couple of items stand out.
Comparable sales rocked. The firm reported the 7.8% growth that they had guided us to. At the retail level, those comp sales printed at 4.4% growth, while the firm's e-commerce business grew at an astounding 43% pace.
Therein lies the story for me. The firm is executing well, and the outsized growth comes from a place that will allow for eventual margin growth, even if that growth required some increased upfront spending, as the firm had told us in early November. On top of this, I feel that by providing the salon business, the firm builds a mote around its other business lines. The reason the name will trade off this morning is that guidance on revenue for the fourth quarter came in a bit light.
Do I blindly buy the shares Friday morning because they are lower? Of course not. Take a look at the chart. Obviously the Pitchfork, which had been an accurate guide for months, will break on the opening bell. Where does it catch? Our Fibonacci model, a model that this name has obeyed in the past, suggests two spots... $276 and $265. The stock is trading around $278 in the dark hours of early morning/late night.
My intent will be at some point today to enter at around $276 with about one eighth of what I would consider a full position, and then add one quarter of the full load at $265. If that happens, I still have plenty of dry powder. And if it does not happen, I do not break price. This happens only on my terms. Any partials then become a trade and not an investment. What I do then is price out my hedge, be it the sale of covered calls or discounted puts. We never play high-priced names without manipulating net basis. That will be a game time decision made based on premiums and expiration dates. Rock on.
(A longer version of this column appeared at 7:27 a.m. ET on Real Money, our premium site for active traders. Click here to get great columns like this from Stephen "Sarge" Guilfoyle, Jim Cramer and other experts throughout the market day.)