This Ridiculously Cheap Warren Buffett Stock Could Make You Richer

Berkshire Hathaway has trimmed major holdings and hoarded cash but quietly bought 690,106 shares of Ulta Beauty in Q2 for roughly $266 million (avg ~$406), equal to about 1.5% of Ulta and 0.1% of Berkshire, signaling a selective value wager as markets look expensive. Ulta, which built strong pre-pandemic growth through store expansion and a large loyalty base, has seen a slowdown—management cut comps guidance to flat to -2%, analysts forecast roughly flat revenue and ~10% EPS decline—pushing the stock down more than 30% from its March peak; counterweights include no interest-bearing debt, 43.9 million rewards members (+5%), ongoing store activity and a $2 billion buyback ($1.6 billion remaining) against a ~ $17 billion market cap and a forward P/E near 15x at about $380. The takeaway for investors is that Buffett’s modest position reflects a tactical, potentially asymmetric bet on a rebound in discretionary spending and margin recovery, but near-term promotional and margin pressures mean elevated execution risk despite the attractive valuation.

Analysis

Berkshire Hathaway’s tactical repositioning — trimming major holdings, building cash to a record, and buying 690,106 Ulta Beauty shares in Q2 for roughly $266 million (avg ≈ $406) — signals a selective value bet rather than broad conviction; the purchase represents about 1.5% of Ulta’s shares and 0.1% of Berkshire’s portfolio. The article notes the broader market trades near all-time highs (S&P ~3% below peak) and a forward P/E ~22, while Ulta is described at roughly $380 with a forward P/E near 15, presenting an apparent valuation gap.

Ulta’s long-term track record is strong: revenue CAGR ~19% (2007–2019), gross-margin expansion and large store growth, but pandemic-era disruption produced volatile comps and profit swings (comps: -17.9% FY2020, +37.9% FY2021, +15.6% FY2022, +5.7% FY2023; gross margin: 31.7%→39.1% FY2020–FY2023; net-income growth swung from -75.1% to +460.8% then back to +3.9%).

Near term Ulta faces execution risks: management cut comps guidance to -0% to -2% for fiscal 2024, analysts forecast nearly flat revenue and ~10% EPS decline, and the stock is >30% off its March high. Offsets include no interest-bearing debt, 43.9 million Rewards members (+5% YoY), and a $2 billion buyback with ~$1.6 billion remaining; Buffett’s modest stake suggests a recovery-oriented, risk-weighted exposure rather than a full endorsement.

Key Decisions for Investors

• Consider initiating a modest, size-limited long position in ULTA to capture asymmetric upside from a ~15x forward P/E and an active $2bn buyback, but cap exposure given near-term EPS and comps risk
• Monitor quarterly comps, promotional intensity, gross-margin trends, and management’s pace of buyback deployment as primary triggers to add to or trim the position
• Use hedging (options) or explicit stop-loss levels to protect against further downside if discretionary spending weakens or guidance deteriorates beyond the current -0% to -2% comps forecast