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I own AIM-listed growth stock Warpaint (LSE: W7L) but I don’t always get it. I bought it because I think it has tremendous long-term prospects, yet its volatile share price rarely seems to reflect what’s happening on the ground.
Warpaint’s corporate mission is to “ensure everyone has access to high-quality cosmetics at an affordable price”. Owner of the W7 and Technic brands, its products can be found here in Boots and in the US, as well as hundreds of stores in the Netherlands and Philippines.
I added the stock to my self-invested personal pension (SIPP) in January last year. At the time, it was flying, having increased by 360% in five years. Over the last 12 months, it’s down 6%.
Warpaint is fighting back
It’s rare for me to buy a momentum stock. And extremely rare for me to buy a company this small, with a market cap of around £383m as I write this (25 May).
Typically, I focus on big FTSE 100 companies, ideally with super-high yields, whose shares have been performing badly and look good value as a result. I bought Warpaint for a bit of balance, and a bit of excitement. But I also had the nagging feeling I was coming to the party too late.
For a while, the party carried on and I quickly found myself sitting on a 50% gain. Being a simple chap, I was happy.
On 17 September 2024, it hailed a record first half, with earnings soaring 66% to £12m. Group pre-tax profit jumped 75% to £10.9m. What’s not to like, I thought?
Volatile share price
Clearly, there was something not to like, because the shares dipped on the day. And they continued to slide, even though next day analysts at Berenberg hiked their target price from 580p to 680p.
On 6 February 2025, Warpaint forecast 2024 pre-tax profit would climb 33% to £24m. Markets saw that as a slowdown, as the slide continued. Suddenly, instead of being up 50%, I was down about 25%.
I can only assume that investors had baked in high growth expectations, and anything less than brilliant was going to make some think twice. I pored over the group’s reports, but didn’t see any major reason to sell, so I didn’t.
When Warpaint confirmed record full-year sales, margins and profits on 29 April, and a solid Q1 2025, the share price barely budged. Now suddenly it’s flying. And I don’t really know why.
Sales and profits remain strong
Obviously, Donald Trump rowing back on his trade war threats has helped. Even though chairman Clive Garston has said that “the US remains a modest part of the group’s overall business”, and Warpaint has “significant growth opportunities elsewhere”.
So what’s next? Brokers reckon Warpaint’s like-for-like revenues will grow 15% this year, and I guess that’s now the benchmark for success. If they fall short, my shares are likely to beat another retreat. But if they exceed that…
I can only assume that the Warpaint share price had got a little ahead of itself. Today, it seems to be in a better place. Consensus broker forecasts predict the shares will hit 666p in a year. That’s up 40% from today. It may not quite go gangbusters, but I’m optimistic for solid long-term growth from here. With a few bumps.
