Investors hoping Avon Products Inc. (NYSE: AVP) will stage a big turnaround probably shouldn’t hold their breath.

After numerous failed attempts to boost its faltering business, the iconic cosmetics marketer may well be a lost cause. Current media reports about a possible sale of the legacy North American segment are a clear sign of how a once-great company has fallen.

Rather than risk an investment in Avon, investors should consider a lesser-known, but far more promising, beauty products retailer: Ulta Salon Cosmetics & Fragrances, Inc. (Nasdaq: ULTA).

Founded in 1990, more than a century after Avon, Ulta is seen by some analysts as the most exciting growth stock in the beauty products industry. During the past three years, annual sales climbed more than 80% to $3.2 billion, net income roughly doubled to $257 million and free cash flow swelled to an all-time high of $148 million. Shares of Ulta rose roughly 70%, well outpacing the broader market.

Whereas Avon is built upon a direct sales business model, Ulta takes a more traditional route. Since its founding, the company has established 774 company-owned “big box” retail outlets in 47 states, with plans to open many more in the coming years.

#-ad_banner-#Although the advent of e-commerce has prompted some to declare the big-box approach outmoded, Ulta makes the strategy work by providing a one-stop shop, combining full-service salons with retail counters selling beauty products. This positions hair stylists and other salon associates as trusted beauty consultants, who can then steer customers toward on-site inventory consisting of thousands of products.

Offerings run the gamut from low-end to premium brands to foster broad appeal. However, Ulta primarily attracts women earning more than $75,000 a year, a key competitive advantage since higher income groups typically have more disposable income and can better maintain spending levels when the economy sputters.

Based on shifting consumer preferences, stores are primarily standalone locations situated so that customers can drive up, park and enter. Shoppers increasingly want to avoid having to walk through a large mall to reach their destination, management asserts.

Along with greater convenience, Ulta draws in customers with an uncanny talent for trend-spotting. “They have a good eye for up-and-coming hot new products,” KeyBanc Capital Markets analyst Jason Gere recently told Investors Business Daily. Among the company’s latest new-product rollouts were premium skincare and cosmetics brands, as well as fragrances from Michael Kors Holdings Ltd. (NYSE: KORS), Gere said.

Ulta’s strategy generated 11% growth in comparable-store sales in fiscal (January) 2015, up from roughly 9% the prior year. These impressive “comps” stem from fast-rising transaction volumes and average purchase amounts, which climbed about 8% and 3%, respectively, in the latest fiscal year. Improved marketing, greater brand awareness and new product availability are among the key catalysts for recent gains, analysts say.

While Ulta reaches customers mainly through its stores, management acknowledges the need for an online presence to maximize service and product access.

To bolster this presence, Ulta recently redesigned its website, increased the number of products available on the site and added services such as an online loyalty program, and interactive chats with product experts. Online capabilities now also include product demonstration videos with an embedded e-commerce capability, which lets customers make purchases while watching the videos.

A 55% gain in online sales last year is a clear sign e-commerce investments are paying off. Management projects online sales will roughly double to 10% of total revenue within five years.

Store expansion goals are especially ambitious, with plans to add 100 locations annually for the next five years; this would bring the total to nearly 1,300 by 2019. Some new locations will be scaled back to a 5,000-square-foot “small-store” format that should be better suited for rural and urban markets than the usual 10,000-square-foot layout, management says.

Unlike many rapidly expanding companies, Ulta isn’t highly leveraged. In fact, the company carries no debt. Operating cash flow has been more than enough to cover capital outlays, even though these expenditures nearly doubled since 2012 to $249 million.

Risks To Consider: Though dominant, Ulta faces increasing competition from J.C. Penney Co., Inc. (NYSE: JCP), Kohl’s Corp. (NYSE: KSS) and other retailers that are ramping up similar full-service beauty salons. Also, Ulta’s stock isn’t for the faint of heart. High valuations, such as a price-to-earnings ratio of 39, place shares at risk for added volatility in rough markets.

Action To Take –> With Avon in decline, Ulta is set to swoop in and assume leadership of the cosmetics and beauty products industry. Unencumbered by debt and armed with a proven business model, the company is on pace for continued robust growth.

Assuming a steady earnings multiple, Ulta’s stock could still advance by double digits through the remainder of 2015 despite already rising about 20% thus far in 2015. Shares should also offer considerable long-term upside and, at some point, the potential to pay dividends.

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