Ulta Stock: Down 24% in Just 1 Month, Is This a Buying Opportunity?

Shares of beauty retailer Ulta Beauty (NASDAQ: ULTA) are tumbling. Since the company's fourth-quarter earnings report last week, the stock has experienced a severe double-digit drop. Zooming out over the last 30 days, shares are down about 24%, reflecting increased pessimism toward the stock recently.

Investors seeing a steep pullback in a historically strong retail name might be tempted to step in. And there are reasons to be upbeat. The company's holiday sales figures, for instance, certainly demonstrated resilience on the surface.

However, a closer examination of the company's margin trajectory and guidance suggests there may be a good reason for the stock's recent pullback.

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Strong sales, rising costs

Ulta's fourth-quarter revenue metrics showed a retailer performing well and continuing to drive traffic to its stores.

Ulta's fourth-quarter net sales jumped 11.8% year over year to $3.9 billion. And its comparable sales rose a healthy 5.8%. This growth in comparable sales was fueled by a 4.2% increase in average ticket size and a 1.6% rise in transactions.

"The Ulta Beauty team closed the year with momentum, delivering strong fourth quarter and full-year sales and continued market share gains," explained Ulta CEO Kecia Steelman in the company's fourth-quarter update. "Our better-than-planned financial performance reflects our continued focus on serving our guests and consistently delivering great experiences through better execution, compelling newness, more seamless and convenient experiences, and bold new merchandising and marketing strategies."

One issue, however, is what it costs to generate those sales. Ulta's operating margin took a notable hit, falling to 12.2% from 14.8% in the year-ago period.

That margin compression was primarily driven by a 23% spike in selling, general, and administrative expenses. Management attributed the heavier cost burden to strategic enterprise investments, higher advertising expenses, and increased incentive compensation. As a result, earnings per share fell to $8.01 -- from $8.46 in the year-ago period.

While the fourth-quarter profit pressure was a headwind, the real concern was the company's fiscal 2026 guidance.

For the full year, management said it expects comparable sales to grow just 2.5% to 3.5%. That is a noticeable step down from the 5.4% comparable sales growth Ulta delivered in fiscal 2025.

An outlook like this signals to investors that the company may be entering a slower-growth period.

When asked about the company's guidance, Steelman noted on Ulta's fourth-quarter earnings call that it reflects the fact that the company will face more challenging year-ago comparisons as Ulta moves through the year. In addition, Steelman said management is "cautious about how the consumer demand could evolve given the macro pressures and rising conflicts," but she also said that "beauty has been a resilient category to these macro pressures."

In short, the business is challenged, but it's not out. Ulta's growth may slow, but it likely won't come to a halt.

A fair valuation, but not a clear buy

Does a 24% drop in one month make Ulta stock attractive today?

Prior to the earnings release, Ulta arguably traded at a premium that demanded near-flawless execution. Any pressure on margins or sales growth was likely to trigger a severe contraction in its valuation multiple -- and it did exactly that.

Following the drop, however, shares now trade at roughly 18 times the midpoint of management's fiscal 2026 earnings guidance -- a reasonable valuation for a growing and resilient retailer like Ulta. The decline adjusts the valuation to better account for the specific risks of a competitive landscape and a cautious consumer base.

But is the stock a buy? Probably not. Investors should buy stocks when they look undervalued -- not fairly valued. New investors should weigh the price tag against the company's changing growth profile. Yes, the current valuation does a good job of pricing in the slower top-line pace and persistent margin pressures. But the price isn't attractive enough to leave room for scenarios in which things potentially go worse than planned.

I would prefer to wait on the sidelines until management can demonstrate renewed operating leverage, or until the stock trades at a price that looks more like a discount instead of fairly valued.

In short, I think Ulta stock's sell-off was a rational adjustment to rising costs, a more cautious consumer, and an increasingly crowded beauty market.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ulta Beauty. The Motley Fool has a disclosure policy.