Forget Apple's share price, I'm looking at Warren Buffett's latest purchase

Although much attention has been focused on an apple Warren Buffett's highest net worth Berkshire Hathaway has cut its main stake, I am particularly focused on the new addition of the Oracle of Omaha to his portfolio: Divine Beauty (NASDAQ:ULTA). So what makes this beauty rogue an attractive investment for the world's most famous investor? Let's take a closer look.

A new position

In the latest regulatory filing, it was revealed that Berkshire Hathaway bought about 690,000 shares of Ulta Beauty in the second quarter, valued at about $266m as of June 30. The new position immediately caught the market's attention, with shares rising 14% in after-hours trading following the announcement.

The company operates as a specialty beauty retailer in the US, offering a variety of cosmetics, fragrances, skincare, haircare and salon services. With more than 1,300 stores in 50 states, it has established itself as a one-stop shop for beauty lovers, carrying both prestige and mass-market brands.

This is one of the key strengths of a company with a wide range of products at all different price points. The diverse offering allows the company to cater to a wide range of consumers, from the most price-conscious consumers to those looking for high-end luxury brands. This strategy has helped it become the preferred destination for high-end beauty products, perhaps giving it a competitive edge in an overcrowded market.

Solid numbers

Overall, recent financial performance has been strong, with the company reporting $11.3bn of revenue over the trailing 12 months. Despite facing challenges from the rapid expansion of competitors like LVMH's Sephora both as standalones and in-house Kohl's in stores, the business has maintained a strong market position.

I suspect the company's valuation may have caught Buffett's attention. The stock is currently trading at a price-to-earnings (P/E) ratio of about 16 times, which is below its historical average. This relatively attractive rate, combined with the company's growing market position and strength, aligns well with Buffett's investment philosophy.

Looking ahead, management has put in place several plans to boost growth. The company is focused on expanding its range, developing its digital capabilities, and strengthening its loyalty program. These efforts are expected to contribute to comparable sales growth in the second half of 2024.

Dangers ahead

However, it is important to note that the company is facing some challenges. Management recently updated its financial forecast for 2024, lowering its forecast for comparable sales growth to 2%-3% from 4%-5%. Additionally, increased advertising activity has been putting significant pressure on sales margins.

Despite these challenges, I would suggest that Buffett's investment reflects confidence in its long-term prospects. As always, Buffett's approach is to invest in businesses with strong fundamentals and competitive advantages, rather than trying to time short-term market movements.

For investors considering following Buffett's lead, I think it's worth noting that stocks have seen significant volatility in recent years. They reached a high of $574.76 in 2023 before returning to current levels around $365. This volatility emphasizes the importance of taking a long-term view when investing, like Buffett himself.

So, while Apple remains the most important holding of Berkshire Hathaway, I would say that Buffett's new purchase deserves attention. When the world's most successful investor makes a move, it's definitely worth paying attention to, so I'll be adding the company to my watch list for now.