Ulta's June Swoon: Buying Opportunity Or New Bearish Trend?

Makeup retailer Ulta Beauty Inc ULTA bounced by 2 percent Wednesday after a disastrous June has the stock down 15.1 percent in the past month. Struggles in the U.S. retail sector are par for the course in 2017, but investors and analyst had mostly been giving Ulta a pass in recent years.

Ulta bears likely believe the stock’s June swoon is the market finally realizing the threat that Amazon.com, Inc. AMZN poses to Ulta. Ulta bulls, however, see the weakness as a healthy pullback in the middle of a multi-year bull market for the makeup giant.

This week, CNBC analyst Jim Cramer said it is in fact competition that is weighing on Ulta, but not necessarily from Amazon. Cramer said department stores that are reeling thanks to competition from Amazon are slashing prices on beauty products.

The Beauty Battle Goes Beyond Amazon

“Most investors don’t even realize it or understand it, this is the competition that is playing havoc with the stocks of a few very highly visible companies in this market right now,” he said.

“Can Ulta’s stock pull out of this tailspin? Yes, but not until it trades at a more reasonable valuation.”

Ulta’s stock is currently trading at an elevated PE ratio of around 30.

Related Link: Ulta's Stock Threatened By One 'Destructive Force,' According To Cramer

Oppenheimer is not concerned about price cuts by Macy’s Inc M and other department stores.

“The department store concern has been out there in recent weeks following Macy’s commentary regarding plans to be more promotional in beauty, but from our perspective, this is not new news,” the firm wrote this week. “We are still very comfortable with our fundamental views on the name and would expect the shares to regain some of the recent losses.”

Oppenheimer also reiterated its Outperform rating on Ulta stock.

Long-time Ulta investors went through a similar pullback around the same time last year. From late July to early November 2016, Ulta dropped from an all-time high of $278.63 to as low as $225.13, a 19.2 percent retracement.

Ulta investors are hoping the recent decline will ultimately result in a bounce similar to the one the stock experienced following its 2016 pullback.

Joel Elconin contributed to this story.