Berkshire Hathaway (BRK-B, BRK-A) is placing a bet on Ulta Beauty (ULTA).

On Wednesday, the Warren Buffett-led conglomerate revealed in a regulatory filing that it bought 690,106 shares in the beauty retailer in the second quarter, worth roughly $266 million as of the end of June. Ulta stock jumped over 11% on Thursday and continued to rally on Friday, up 14.6% since Berkshire disclosed its holdings.

The move is “a big stamp of approval,” BMO Capital Markets managing director and senior analyst Simeon Siegel told Yahoo Finance. “The beauty category has always been an attractive category.”

In addition to taking a stake in Ulta, Berkshire Hathaway added aerospace manufacturing company Heico (HEI) to its holdings and exited its positions in Snowflake (SNOW) and Paramount (PARA). Berkshire also trimmed shares of Apple (AAPL), among other names.

However, Berkshire’s stake in Ulta came as a surprise. The stock has had a tough year so far, though, which may have made it more attractive, in line with Buffett’s value-oriented investment philosophy. Shares of the retailer are down 23% since the beginning of the year.

“Warren Buffett is almost like the original value investor, and I think that that’s the way they looked at it,” said Loop Capital Markets managing director Anthony Chukumba, who has a Buy rating on Ulta stock. “We do like the fact that Berkshire got involved with the stock. It definitely lends credibility to the story.”

Ulta’s slowdown concerns

Ulta is one of the largest beauty retailers in the US and is set to expand into Mexico in 2025. In its most recent quarter, the company increased sales by 3.5% year over year to $2.7 billion, continuing a trend of strong growth and overall resilience in the beauty industry.

However, on April 2, Ulta Beauty CEO Dave Kimbell warned investors of “a slowdown in the total category across price points and segments.”

That spurred a sell-off in the stock, reflecting investors’ fears about a downturn in sales and increased competition from Sephora and Amazon (AMZN), particularly in the higher-end beauty segment.

According to Chukumba, those concerns seem “overblown.”

“Ulta has a great model,” he continued. “They have a completely debt-free balance sheet. They generate a ton of free cash flow. They buy back stock pretty aggressively. I think they’re going to initiate a dividend later this year, which will open up the stock to income investors as well.”

Siegel questioned whether Ulta is a healthy but more mature business or if it’s saturated and is no longer able to sustain its growth story.

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“Ulta and Sephora have revolutionized the way [the] consumer shops beauty the last 15 years,” Siegel said. “The business has dramatically taken … share away from department stores in favor of the specialty beauty retailers, which are predominantly Ulta and Sephora. They’ve done a phenomenal job.”

However, “Ulta has now pivoted or has now cycled into the next leg of its maturity,” Siegel continued. “It’s no longer growing at the same level that it was growing.”

He added that it will be up to management to prove to shareholders that it can still grow.

In May, CEO Kimbell told shareholders, “I remain confident in our differentiated model, the resilience of the beauty category, and our ability to execute against our plans, but we have adjusted our annual guidance as we anticipate the dynamics we faced in the first quarter to continue for the balance of the year.”

Kimbell announced that the company will share more details at its investor day in October about its plan to drive long-term share growth.

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Most readers would already know that Hartford Financial Services Group’s (NYSE:HIG) stock increased by 7.1% over the past three months. Given that the market rewards strong financials in the long-term, we wonder if that is the case in this instance. In this article, we decided to focus on Hartford Financial Services Group’s ROE.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In simpler terms, it measures the profitability of a company in relation to shareholder’s equity.

See our latest analysis for Hartford Financial Services Group

How Do You Calculate Return On Equity?

The formula for return on equity is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity

So, based on the above formula, the ROE for Hartford Financial Services Group is:

19% = US$2.9b ÷ US$16b (Based on the trailing twelve months to June 2024).

The ‘return’ is the yearly profit. That means that for every $1 worth of shareholders’ equity, the company generated $0.19 in profit.

Why Is ROE Important For Earnings Growth?

So far, we’ve learned that ROE is a measure of a company’s profitability. Based on how much of its profits the company chooses to reinvest or “retain”, we are then able to evaluate a company’s future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.

A Side By Side comparison of Hartford Financial Services Group’s Earnings Growth And 19% ROE

At first glance, Hartford Financial Services Group seems to have a decent ROE. Further, the company’s ROE compares quite favorably to the industry average of 13%. This certainly adds some context to Hartford Financial Services Group’s decent 8.2% net income growth seen over the past five years.

Next, on comparing Hartford Financial Services Group’s net income growth with the industry, we found that the company’s reported growth is similar to the industry average growth rate of 10% over the last few years.

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Hartford Financial Services Group fairly valued compared to other companies? These 3 valuation measures might help you decide.

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Is Hartford Financial Services Group Making Efficient Use Of Its Profits?

Hartford Financial Services Group has a low three-year median payout ratio of 23%, meaning that the company retains the remaining 77% of its profits. This suggests that the management is reinvesting most of the profits to grow the business.

Additionally, Hartford Financial Services Group has paid dividends over a period of at least ten years which means that the company is pretty serious about sharing its profits with shareholders. Upon studying the latest analysts’ consensus data, we found that the company’s future payout ratio is expected to drop to 17% over the next three years. Despite the lower expected payout ratio, the company’s ROE is not expected to change by much.

Conclusion

Overall, we are quite pleased with Hartford Financial Services Group’s performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. We also studied the latest analyst forecasts and found that the company’s earnings growth is expected be similar to its current growth rate. Are these analysts expectations based on the broad expectations for the industry, or on the company’s fundamentals? Click here to be taken to our analyst’s forecasts page for the company.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

It goes beyond just getting from point ‘A’ to point ‘B.’ A vehicle acts as a lifeline to work, school, doctor appointments, and more. For many people living in Arizona, a vehicle is essential, but it might not be affordable.

Let ABC15 Know viewer Stephen says when his Jeep had a transmission problem, he had to take it to a shop. However, being without a car created other issues.

“I was just trying to get my vehicle back because I was trying to get back to work,” Stephen explained.

The repair was not cheap. Stephen financed $2,818 through the repair company to afford the new transmission. As part of the contract, the annual percentage rate for the loan was nearly 180%! But, without other financing options and in need of a vehicle, he signed.

“It’s ridiculous,” Stephen said, voicing his frustration. “There should be a cap for how much they can charge an interest.”

In Arizona, there is no law limiting auto loan interest rates, but there is a law capping title loan rates.

By law, title loans have limits on the monthly interest rate that can be charged depending on the price of the loan.

Let ABC15 Know viewer Jaylyn shared their title loan document. They financed $2,500 and their APR was a whopping 153%. While a high number, it’s within the legal monthly percentage limit. At the 153% rate, Jaylyn would pay more than $12,000 to clear the loan.

Companies fronting the loans do take on risk, but consumers like Stephen question if such large percentage rates add extra hardship on consumers without many financial options.

“I ended up going through and selling things that I had so I could pay off this one particular loan,” Stephen explained.

The Arizona Department of Insurance and Financial Institutions has the following tips for consumers:

• Make sure you understand how title loans work and how the interest is calculated
• Ask questions if anything is unclear
• Compare interest rates between lenders
• Never sign a contract before reading it
• If you are not able to make a payment when it is due, contact the lender to make payment arrangements
• If you have a problem with a Title Lender, file a complaint with DIFI