Top Stories
Top Stories

Cramer tries to understand what happened to Ulta Salon

Cramer: What the heck just happened to Ulta Salon

Until very recently, Ulta Salon, Cosmetics & Fragrance was one of the hottest stocks out there. It suddenly fell off a cliff for no discernible reason, leaving Jim Cramer confused.

"Eventually all growth stocks run into the problem of great expectations, but if the story is intact, they ultimately bounce back," the "Mad Money" host said.

The question now becomes whether Ulta is a broken stock or a broken company. If the company is broken, work has to be done before investors can make a move. But if merely the stock is broken, it could just be a matter of time before it makes a comeback.

ULTA beauty event
Tasos Katopodis | CNBC

At the end of August, Ulta reported what seemed like a good quarter, but the stock tumbled 6 percent that day. It has plummeted more, down 12 percent in the past month.

Cramer searched to find out if there was something underneath the headline numbers explained why the market turned on Ulta, but failed to find anything.

"The problem with Ulta's results, the reason why its stock has been tumbling almost non-stop since it reported, is all about context," Cramer said. "Put simply, Ulta's numbers may have been great, but they weren't great enough versus lofty expectations."

In other words, the company had such a great track record, investors had really high expectations. So when Ulta delivered a small top and bottom line beat, investors wanted a huge beat with substantially high guidance.

Far too many shareholders assumed that the company could keep beating the numbers by epic proportions.

The verdict? This is a broken stock, not a broken company, Cramer said.

"That is why I think it is worth buying, particularly if it keeps going lower on the same old information," Cramer said.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine

Questions, comments, suggestions for the "Mad Money" website?

Related Tags