We recently compiled a list of the 10 Best Hair Care Stocks To Buy Now. In this article, we are going to take a look at where Ulta Beauty, Inc. (NASDAQ:ULTA) stands against the other hair care stocks.
According to Fortune Business Insights, in 2023, the hair care industry was estimated to be worth $99.52 billion globally. Between 2024 and 2032, the market is projected to expand at a CAGR of 10.4% from $106.91 billion to $213.47 billion. In 2023, Europe held a 36.43% market share, leading the hair care industry.
The demand for hair care products has increased as a result of the growing acceptance of longer hairstyles by males and the growing popularity of hair coloring. According to a survey conducted in 2020 by Garnier, 42% of 2,000 Americans discovered new techniques for dyeing their gray hair. Secondly, an increasing number of consumers are dealing with hair problems such as dandruff, graying hair, and hair loss, which will likely lead to a rise in the use of hairdressing products. According to survey results released in January 2022 by the Dermatology & Cutaneous Surgery Institute (DCSI), over two-thirds of Americans over the age of 35 experience issues with hair thinning and loss. Furthermore, the World Health Organization (WHO) released estimates showing that 30% of Japanese people were over 60 in 2020. Thirdly, there is an increasing emphasis on the development of organic and natural products to meet rising product demand. For example, Australian scalp care brand Straand made its UK debut in November 2023. To create product distinctiveness in the very competitive market, the company concentrates on creating cruelty-free and microbiome-centric products.
Specifically, as we have mentioned in our article, “20 Cheap Alternatives to Aveda Shampoo,” the global luxury hair care market was dominated by the luxury shampoo segment, which held a revenue share of approximately 30.5% in 2023.
According to a Cirana report, sales of hair products in the prestige market rose by 10% YoY in the first half of 2024, based on dollars, with styling and treatments showing the fastest rate of growth within the category. The trend of premiumization is still driving growth; three times as many hair products as lower-priced items have been added in the last three years, and these products now make up 25% of the category’s unit sales, compared with 15% just three years ago. Being the only beauty category where the bulk of sales takes place online, the premium hair market also makes for an intriguing channel tale. In fact, with double-digit growth in sales, the e-commerce channel is not slowing down at all.
One hair care product that is gaining popularity is dry shampoo. As we have stated 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 a valuation of $9.18 billion in 2030.
As we look ahead, Frost & Sullivan’s report reveals that the hair care market is changing due to disruptive technology like artificial intelligence, customized solutions, and innovative ingredients. The “skinification” movement places a strong emphasis on scalp health, which is driving businesses to use regenerative medicine and useful components like biotin and peptides. Personalized care is improved via IoT-enabled grooming products and AI-powered scalp analysis technologies. Companies are adopting waterless products, recyclable packaging, and a reduction in toxic chemicals as a significant priority in sustainability. Companies that want to satisfy changing customer preferences and lessen their environmental effect must promote scalp health and integrate next-generation technologies. These developments spur expansion and help brands maintain their competitiveness in a market that is changing quickly.
Benoit Butruille, Growth Expert and Principal Consultant, TechVision at Frost & Sullivan, stated:
“Hair and scalp care is booming, and it is of great interest to understand the innovations and strategies driving this growth. Technologies such as AI are being used to develop smart hair care devices. Additionally, sustainable practices are becoming increasingly important as more customers seek products made with ethically sourced, eco-friendly ingredients.”
Methodology:
We sifted through holdings of hair care ETFs and online rankings to form an initial list of 20 hair care stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A photograph of a customer testing out different products in the skincare aisle at a store.
Ulta Beauty, Inc. (NASDAQ:ULTA)
Number of Hedge Fund Investors: 46
Ulta Beauty, Inc. (NASDAQ:ULTA) is the biggest specialty beauty retailer in the United States as well as one of the “20 Biggest Retail Companies in the US,” with 1,385 shops by the end of the fiscal year 2023 and a collaboration with Target. The company’s products include makeup (41% of sales in 2023), perfumes, skin care (19% of sales), hair care (19% of sales), and bath and body items. Ulta Beauty now sells its products online and offers an array of social media content, tutorials, and tips.
Private-label goods and merchandise from over 500 suppliers are available at Ulta. In every store, it provides salon services such as skin, brow, cosmetic, and hair services.
The majority of Ulta locations are located in suburban strip centers and have an approximate floor area of 10,000 square feet. Ulta is headquartered in Bolingbrook, Illinois, and was established in 1990.
The beauty retailer’s strong reputation has helped it prosper despite adverse external factors and the state of the economy. Ulta opened its first shop ten years ago, and with the help of new brands and products, better marketing, and an expanded loyalty program with over 43 million active members, it became the biggest specialized beauty retailer in the US. Ulta’s sales rose from $912 million in 2007 to $11.2 billion in 2023 as a result of the company opening more than 1,000 locations, improving shop productivity, and growing e-commerce. It is now a sought-after partner for prestige, mass, and up-and-coming beauty companies as a result of its success.
Although the company is subject to fierce competition, product cycles, and innovation in the cosmetics industry, analysts believe that it has built a loyal customer base that has helped it capture market share from mall-based retailers and effectively compete with e-commerce giants like Amazon. They believe that Ulta’s salons, selection, incentives, and service stimulate repeat business and that adolescent girls and women enjoy trying out items in the shop.
In Q2 2024 earnings call, Dave Kimbell, Chief Executive Officer stated that following about the hair care segment;
“And so when there’s pressure on one part of the business, it impacts our whole store. But our mass business is performing well, and we’re confident in our outlook there. As far as the hair dynamics, I mentioned in the remarks, the primary driver. We’re pleased with our hair business. It’s a critical part of our business. I mentioned our salon is performing well. The hair business primary driver of the performance there was a shift in one of our strategic tent pole events in hair from the second quarter into the first quarter. And that was the primary driver of the lower results in that. But our hair business is important, and we continue to find ways to drive that business going forward.”
Warren Buffett’s Berkshire Hathaway is the largest shareholder in the company, with 690,106 shares worth $266.29 million.
Overall ULTA ranks 5th on our list of the best hair care stocks to buy. While we acknowledge the potential of ULTA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ULTA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.