We recently compiled a list of the 10 best hair care stocks to buy right now, and in this article we’ll take a look at how Ulta Beauty, Inc. (NASDAQ:ULTA) stands up against other hair care stocks.
According to Fortune Business Insights, the hair care industry is estimated to be worth $99.52 billion worldwide in 2023. The market is projected to expand at a CAGR of 10.4% from $106.91 billion to $213.47 billion from 2024 to 2032. Europe led the hair care industry in 2023 with a market share of 36.43%.
The growing acceptance of longer hairstyles for men and the growing popularity of hair coloring have resulted in an increased demand for hair care products. According to a survey conducted by Garnier in 2020, 42% of 2,000 Americans discovered new ways to dye their gray hair. Secondly, an increasing number of consumers are experiencing hair problems such as dandruff, gray hair, and hair loss, which may lead to an increase in the use of hair styling products. According to survey results released in January 2022 by the Dermatology and Cutaneous Surgery Institute (DCSI), more than two-thirds of Americans over the age of 35 suffer from thinning hair and hair loss. In addition, the World Health Organization (WHO) released estimates showing that 30% of Japanese people were over 60 years old in 2020. Thirdly, there is an increasing focus on the development of organic and natural products to meet the growing product demand. For example, Australian scalp care brand Straand entered the UK in November 2023. To differentiate its products in a highly competitive market, the company is committed to developing cruelty-free and microbiome-focused products.
Specifically, as mentioned in our article “20 Cheap Alternatives to Aveda Shampoo”, the global luxury hair care market is dominated by the luxury shampoo segment, with a revenue share of around 30.5% in 2023.
According to a Cirana report, luxury haircare sales will grow 10% year-over-year in dollar terms in the first half of 2024, with styling and treatment seeing the highest growth in the category. Premiumization trends are still driving growth, with three times as many haircare products added over the past three years as lower-priced items, and these products now account for 25% of the category’s unit sales, up from 15% just three years ago. As the only beauty category where the majority of sales are made online, the luxury haircare market also makes for an interesting channel story. In fact, the e-commerce channel, with sales growing in double digits, isn’t slowing down at all.
The story continues
One hair care product that is growing in popularity is dry shampoo. As mentioned in our article, 11 Dry Shampoo Alternatives for Every Hair Color and Type, the dry shampoo market is expected to grow from $5.35 billion in 2023 to $9.18 billion by 2030.
Looking to the future, the hair care market is being transformed by disruptive technologies such as artificial intelligence, customized solutions, and innovative ingredients, according to a Frost & Sullivan report. The “skinfication” movement is placing emphasis on scalp health, leading companies to use regenerative medicine and beneficial ingredients such as biotin and peptides. Personalized care is being enhanced by IoT-enabled grooming products and AI-powered scalp analysis technologies. Companies are adopting waterless products, recyclable packaging, and reduced toxic chemicals as key sustainability priorities. Companies that want to meet changing customer preferences and reduce their environmental impact must promote scalp health and integrate next-generation technologies. These developments will fuel expansion and help brands stay competitive in a rapidly changing market.
“The number of companies that are looking to expand their presence in the digital space is on the rise,” said Benoit Boutouril, growth expert and principal consultant, TechVision, Frost & Sullivan.
“Hair and scalp care is growing rapidly, and understanding the innovations and strategies driving this growth is of great interest. Technologies such as AI are being used to develop smart hair care devices. Additionally, sustainable practices are becoming increasingly important as more customers demand products made with ethically sourced and eco-friendly ingredients.”
Methodology:
We compiled an initial list of 20 hair care stocks by scouring hair care ETF holdings and online rankings. We then selected the 10 most popular stocks among institutional investors. These stocks are ranked by the number of hedge funds holding the stocks as of the second quarter of 2024.
Why are we interested in stocks that hedge funds are buying up? The reason is simple: our research shows that by mimicking the top holdings of the best hedge funds, we can outperform the market. Our quarterly newsletter strategy selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150 percentage points. (Learn more)
A photo of a customer trying out different products in the skin care section of a store.
Ulta Beauty, Inc. (NASDAQ:ULTA)
Number of hedge fund investors: 46
Ulta Beauty, Inc. (NASDAQ:ULTA) is the largest specialty beauty retailer in the United States and one of the “20 largest retail companies in the United States.” It plans to operate 1,385 stores by the end of fiscal year 2023 and has partnered with Target. The company’s products include makeup (41% of 2023 sales), fragrance, skin care (19% of sales), hair care (19% of sales), and bath and body products. Ulta Beauty currently sells its products online and offers a variety of social media content, tutorials, and tips.
Ulta carries private label items and products from over 500 suppliers, and all stores offer salon services such as skin care, brows, cosmetics, and hair services.
Most of Ulta’s stores are located in suburban commercial districts and have a floor space of approximately 10,000 sq ft. Ulta is headquartered in Bolingbrook, Illinois and was founded in 1990.
The beauty retailer has thrived thanks to its strong reputation, despite external factors and adverse economic conditions. Ulta opened its first store 10 years ago and has become the largest specialty beauty retailer in the United States thanks to new brands and products, better marketing and an expanded loyalty program with more than 43 million active members. Ulta’s sales have grown from $912 million in 2007 to $11.2 billion by 2023 thanks to the opening of more than 1,000 stores, improved store productivity and the growth of e-commerce. As a result of its success, Ulta is now a sought-after partner for leading, mass and emerging beauty companies.
Though the company faces fierce competition, product cycles and innovation in the cosmetics industry, analysts believe it has built a loyal customer base that has helped it grab market share from mall-based retailers and compete effectively with e-commerce giants like Amazon. Analysts believe Ulta’s salons, selection, incentives and services encourage repeat customers, and that teenage girls and women enjoy trying out products in-store.
During the company’s second-quarter 2024 earnings call, CEO Dave Kimbell had this to say about the hair care division:
“So when one part of the business comes under pressure it impacts all of our stores. However, our consumer business is doing well and we remain confident in our outlook. With regards to trends in our hair business, as we said in our comments, it is the main driver. We are happy with our hair business. Hair is an important part of our business. We said our salons are performing well. The main driver of our hair business performance was the shift of one of our strategic tent pole events in our hair business from the second quarter to the first quarter, which was the main driver of our performance decline. However, our hair business is important and we will continue to look for ways to drive it going forward.”
Warren Buffett’s Berkshire Hathaway is the company’s largest shareholder, with 690,106 shares worth $266.29 million.
Overall, ULTA ranks #5 on our list of best hair care stocks to buy. While we acknowledge ULTA’s potential as an investment, we believe some AI stocks have a better chance of delivering higher returns in a shorter period of time. If you’re looking for AI stocks that are more promising than ULTA but still trade for less than five times its earnings, check out our report on the cheapest AI stocks.
Read next: The $30 Trillion Opportunity: The 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and NVIDIA Has “Become a Wasteland” According to Jim Cramer.
Disclosures: None. This article was originally published on Insider Monkey.
