It wasn't long ago that Ulta Beauty fell out of favor with investors, but CNBC's Jim Cramer said it's time to buy the cosmetic retailer's stock again.
"Yes, Ulta's last quarter was a disaster. I wish I'd seen it coming," the "Mad Money" host said Thursday. "But with insiders buying again and the stock looking cheap versus its growth rate, I think Ulta's too tempting here to ignore when it's going down."
Ulta's stock fell nearly 30% in one day in late August after its second-quarter earnings report fell short of Wall Street's expectations and it reduced its outlook for next year.
Shares of Ulta — which Cramer said had been one of the best growth stories in retail for years — continued falling until mid-September, before they started to regain steam.
"I think this rebound, I think it's the real deal," Cramer said.
In some ways, Ulta's steep fall was due to its period of strong ascension, Cramer said.
"For years, they delivered spectacular double-digit same-store sales growth — some of the best in the whole retail cohort," Cramer said, noting the company drew some customers into stores by offering salon services, then sold them cosmetic products.
"In short, Ulta Beauty became a market darling, and the problem with market darlings is that, when they fail to meet expectations ... their stocks just get completely eviscerated," Cramer said. "After a huge run at the beginning of this year, the buyers seemed exhausted."
Cramer said another notable thing happened to Ulta earlier this year: heavy insider selling.
In the first quarter, the company's directors and executives — including CEO Mary Dillon — sold almost $260 million worth of stock. In 2018, they sold less than $54 million, Cramer said.
"With the benefit of hindsight, those insider sales told you it was a good time to ring the register on this one," Cramer said.
"Ulta was up huge, so they were only being prudent when they took some profits. Still, it was not something I like to see," added Cramer.
But those insider sales were on the mind of investors when Ulta's poor second-quarter report came in, Cramer said.
On top of the report, Dillon explained on a conference call that the broader cosmetics market was seeing headwinds, leading to the adjusted earnings outlook, Cramer said.
"That's why the stock plummeted nearly 30% in a single day and then spent the bulk of September licking its wounds," Cramer said. "Nobody wanted a seemingly broken growth stock in this environment."
But things are starting to look up, Cramer said. One piece of evidence? Insider buying.
"Unlike insider selling, insider buying only occurs if you think the stock is going to go higher," Cramer said.
Since then, Cramer explained, Ulta has trended back upward, even though its stock fell 2.04% to $257.43 on Thursday.
In particular, Cramer said he recommends buying a little bit of Ulta's shares now and, if the market experiences another pullback, purchasing some more.
"Right now, Ulta sells for 19 times next year's earnings estimates," Cramer said. "It's no longer trading like a high-flying growth stock — it's much closer to value territory, actually ... That's why I think the stock is a buy."