When you play with high-multiple fire, you can get burned.
That's why I am relating Ulta (ULTA) and Palo Alto (PANW) . Sure, one's in beauty and the other is in cybersecurity, but they both have stocks with extremely high valuations. Ulta traded at about 45x earnings, the highest-valued retailer going into its quarter. Palo Alto sported an even richer model going into its quarter.
Ulta reported a fantastic quarter, but unlike the previous quarters, it didn't guide to well above what the Street was looking for. Instead, it "did" the number, which is certainly not enough with that elevated price to earnings multiple. My rule of thumb: When you have that big valuation, you have to have some numbers that get analysts to move up at least 5% on their current projections for next year. You didn't get that.
Palo Alto? Wow, billing growth of 45% was amazing. The cash flow margins: 35%-50%. So few companies can give you 33% growth.
However, the company gave you a decelerating forecast, forcing some analysts to actually cut numbers.
That's how the stock could fly after hours on all of the good stuff past and then plummet on all of the bad stuff forward.
You simply cannot possibly cut estimates with that high a multiple and not expect the stock to get whacked, which is exactly what happened.
I think you can make a case as Ulta comes down that there is a level where you are pricing in the good but not fantastic numbers for next quarter. I can't figure out what to pay for Ulta and would prefer to wait until we get closer to the next quarter to buy it.
Still, this is the life cycle of the high-multiple stocks regardless of the industry. They require a beat and a raise of both sales and earnings that few can deliver. These two couldn't. And now shareholders are paying the price.