Momentum feeds on momentum, and right now, one chain of beauty superstores is dragging up all the other high-growth stocks in that sector, Jim Cramer said Wednesday on CNBC's " Mad Money ." That beauty store brand was Ulta Salon, Cosmetics & Fragrance.
Maintaining a well-diversified portfolio of stocks across a variety of sectors is always key, and high-growth stocks do, in fact, make up a sector of their own.
With earnings up 47 percent over the last quarter and an impressive comparable sales increase of 10 percent, Ulta is a real high-growth stock, he said. The company's gross margins have also edged higher and the firm has rapidly begun to expand its store base by over 700 stores — "music to the ears of every growth investor out there," Cramer said. Ulta also boasts a mid-sized market cap of $5 billion and has raised its sales and earnings guidance substantially.
Even so, the "Mad Money" host isn't recommending the stock. In fact, he called the Ulta story a cautionary tale about what might happen when investors chase too much momentum. "You have to be skeptical as insider selling raised red flags, and you can’t get comfortable with super high-speed store growth," he said. "As we have seen that wreck many a good company."
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