The Ultimate Growth Stock to Buy With $1,000 Right Now

Investing can feel overwhelming. There's a lot of jargon, but those starting out shouldn't feel intimidated.

That's because it's important to remember you're buying a portion of a business. Ideally, you'll pay a reasonable price for a growing business. Granted, this isn't easy to do since no one can foresee the future. But doing some homework helps.

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Ulta Beauty (NASDAQ: ULTA) fits the bill of a growing company with a reasonable valuation. Fortunately, you also don't have to start investing a lot of money.

While an initial $1,000 investment means you can currently only buy a couple of shares right now, you can add to this amount over time. In fact, you can use dollar-cost averaging to invest the same dollar amount at regular intervals. That way, you can start with your small investment and build it up over time.

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Growing sales

Ulta Beauty is a retailer that sells a wide range of beauty products across various price points. Its broad offerings mean that the company is in a position to benefit when the economy does well. People trading down during difficult economic times can also find products at Ulta Beauty's retail stores and online operations.

Despite challenging economic times, Ulta Beauty's fiscal first-quarter same-store sales (comps) grew 2.9%. Most of the increase, 2.3 percentage points, was due to higher spending. The balance came from higher traffic. The period ended May 3.

Management bumped up its comps guidance for the year to 0% to 1.5%. Previously, it expected a 0% to 1% gain. Although it's only a slight increase, management noted that it comes amid a lot of economic uncertainty. Hence, should economic policies return to a less volatile state, Ulta Beauty's sales could see some upside.

Over the longer run, when consumers have more certainty about the future and less fatigue from higher prices, Ulta Beauty's sales should increase at a faster pace.

Expansion opportunity

Management's confidence in its long-term prospects is evident in its expansion plans. Ulta Beauty opened 30 and 60 new stores in fiscal 2023 and 2024, respectively.

It had about 1,450 stores at the end of the first quarter, after opening six in the period. Management plans to add about 54 more locations by the end of this year.

The largest specialty beauty retailer in the United States, it still has less than a 10% market share of the roughly $120 billion market. The market size and Ulta Beauty's market share provide a large growth opportunity.

Reasonable valuation

Investors liked Ulta Beauty's recent quarterly results, sending the stock skyrocketing. The share price has increased 20.4% over the last year through May 30 compared to 12.5% for the S&P 500 index.

The stock has become a bit more expensive during this time, too. Ulta Beauty's shares had a price-to-earnings (P/E) ratio of 16 a year ago. However, Ulta Beauty's stock has a lower valuation than the overall market, with the S&P 500 index's P/E multiple at 28.

Naturally, the stock has a cheaper valuation for a reason. Management expects Ulta Beauty to earn $22.65 to $23.20 per diluted share this year. That's down from last year's $25.34.

But given the uncertain short-term U.S. economic outlook, the company's conservative guidance shouldn't come as a surprise. However, this does create a buying opportunity for patient investors, given Ulta Beauty's long-term growth opportunity.

Should you invest $1,000 in Ulta Beauty right now?

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Lawrence Rothman, CFA has 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.