Ulta Beauty Stock Breaks Out Despite Mixed Earnings

Ulta Beauty, Inc. (ULTA) shares rose more than 7.6% on Friday after the company released its fourth quarter financial results following Thursday's market close. Revenue rose 22.8% to $1.94 billion – in line with consensus estimates – while net income came of $2.75 per share missed consensus estimates by three cents per share. While the stock initially fell in after-hours trading, it moved sharply higher during the following session.

Analysts covering the stock were hoping to see stronger comparable sales growth. Telsey and Stifel analysts lowered their price targets to $250 and $225, respectively, citing valuation concerns and pressure on the broader beauty sector. Jefferies analysts came out more bullish than these analysts, adding Ulta to the firm's Buy-rated stock ideas list. These analyst comments and a positive conference call sent shares higher to close out the week. (See also: Ulta Beauty Reports at Its 'Reversion to the Mean'.)

From a technical standpoint, the stock broke out from its pivot point and trendline resistance at around $208.68 to test prior reaction highs. The relative strength index  (RSI) moved closer to overbought territory at 62.39, but the moving average convergence divergence (MACD) continued its bullish crossover dating back to early March. These indicators suggest that the stock could see a period of consolidation before moving higher.

(Learn more about supplemental technical indicators like the MACD in Chapter 4 of the Technical Analysis course on the Investopedia Academy)

Traders should watch for a breakout from prior reaction highs at around $222.00 toward the 200-day moving average at $231.81 or R2 resistance at around $234.78. In the meantime, traders should watch for some consolidation above R1 resistance and the 50-day moving average at $216.98. A breakdown from these levels could lead to a move lower to retest pivot point and trendline support at around $208.68. (For more, see: Ulta Beauty May Be a Cheap Way to Play Retail.)

Chart courtesy of StockCharts.com. The author holds no position in the stock(s) mentioned except through passively managed index funds.