Celsius and Ulta Beauty: Invest in the Future Today

Author: Addison Perry Updated: 09-13-2024 10:18 AM

Investing in the Power of ROIC for Wealth Creation

One of the most compelling metrics for evaluating stocks is the return on invested capital (ROIC). This metric provides crucial insights into a company's profitability relative to its capital investments, indicating how effectively management is deploying capital in growth ventures. Companies demonstrating high ROIC often show a track record of outperforming their peers, making them attractive options for investors aiming for long-term success.

Celsius (NASDAQ: CELH) and Ulta Beauty (NASDAQ: ULTA) are two companies personifying this approach to capital efficiency. Despite recent fluctuations in their stock prices—down 66% and 34% from recent highs, respectively—these companies still exhibit strong growth fundamentals and market potential. This price adjustment may present a strategic opportunity for investors looking to enter or expand their holdings in these stocks.

Understanding Celsius's Journey

Celsius has been on an extraordinary growth trajectory. Between 2019 and early 2024, its stock soared over 7,000%, a testament to its robust sales strategies and branding. However, it has encountered challenges, including a recent decline in sales growth leading to a 66% drop post-peak. Despite this setback, Celsius remains up approximately 2,700% from its 2019 start, indicative of substantial underlying value.

The company achieved an impressive average annual sales growth of 94% over five years, even though its latest quarterly growth slowed to 23%. Analysts are now cautious, predicting that the company's sales may decline as consumer behavior shifts, particularly following its partnership with Pepsi, which initially spurred rapid growth. The significant demand created by Pepsi's orders significantly impacted Celsius's revenue reporting, leading to an inflated growth narrative.

However, amidst these challenges lies a silver lining; current data indicates that scanned sales from retail channels have increased by 10% in recent months, indicating consumer demand remains strong. Additionally, Celsius is keen on expanding its international presence into markets such as Canada, the UK, Ireland, Australia, New Zealand, and France. With a current ROIC of 27%, this company is poised to explore and unlock new growth avenues abroad.

Ulta Beauty: Resilience in a Competitive Landscape

Ulta Beauty has similarly established itself as a key player in the beauty retail sector, with its shares providing a staggering 1,200% total return since its IPO in 2007. Despite a downturn of about 34% from its recent highs, the company benefits from a loyal customer base, with 95% of its sales coming from Ultamate Rewards members. This robust loyalty demonstrates the deep connections Ulta builds with its customers.

In its latest quarterly results, Ulta reported a slight dip in same-store sales, but CEO David Kimball remains optimistic about future performance. Many stores have seen increased competition impacting their sales; however, the demand among Gen Z consumers remains strong, making Ulta the second-most popular beauty destination after Sephora. This demographic represents an enormous market opportunity for Ulta as they continue to cultivate brand loyalty.

Financially, Ulta has sustained an impressive average ROIC of 29% since going public and has consistently generated positive free cash flow (FCF), accumulating nearly $1 billion last year. Armed with $400 million in cash and no long-term debt, the company has been actively reducing its share count by 27% over the past decade, which has greatly enhanced its FCF per share position.

Why Now is the Right Time to Consider These Stocks

The current market conditions present a unique opportunity for investors considering both Celsius and Ulta Beauty. They each have achieved impressive results historically and feature strong management teams focusing on sustainable growth and profitability. In light of the recent price corrections, these companies could be prime candidates for future growth, making them worthy of your investment consideration.

Frequently Asked Questions

What is return on invested capital (ROIC)?

ROIC measures how well a company utilizes its capital to generate profits, indicating the efficiency of management's investment decisions.

How has Celsius performed recently?

Celsius has seen a tremendous growth in stock price but faced a significant decline lately, leading to cautious optimism about future performance.

Why is Ulta Beauty's stock considered a good investment?

Ulta boasts strong brand loyalty and a proven track record, coupled with impressive financial metrics and market positioning.

What factors should investors consider regarding these stocks?

Investors should analyze recent financial performance, market trends, and management strategies, especially in light of competitive pressures.

How might external market conditions affect these companies?

Fluctuations in consumer spending and competitive dynamics can impact both companies, but their adaptive strategies may mitigate long-term risks.

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