On 5 February, growth stock Warpaint (LSE: W7L) updated the market on its “strong” start to the year. Brilliant, I thought. My shares are going to be flying.
Excited, I logged onto my trading account. Shares in the AIM-listed beauty specialist had already climbed by a third since I bought them last January. I expected more. Then it all went wrong.
The Warpaint share price plunged 20% on the day and has continued to slide. It’s now down 28% since those results. Over 12 months, it’s up just 2%. I’m right back where I started.
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Long-term investors can still feel smug. The shares are up 388% over five years, but that’s not much use to me.
The shares have been routed
On 6 December, I proudly declared in these pages that I expected Warpaint would be “on the warpath in 2025”. Instead, it’s on the run.
Its W7 and Technic brands are selling well at Tesco and major retailers in the US and Europe, topped up by online sales from its own site.
February’s update showed the board expects full-year 2024 revenues to have climbed 13.8%, from £89.6m to £102m. Sadly, that was 4% below consensus. That earnings miss hurt.
Investors had priced in more growth with the shares valued at almost 30 times earnings at the end of last year. They’re cheaper today, trading at 22 times.
Other news was better. Pre-tax profits jumped almost 33%, from £18.1m to £24m. Revenue growth accelerated to 15% in January. Not fast enough to convince investors though.
Just three analysts cover Warpaint shares. All rate it a Strong Buy. They’ve set an average target price of 666p over the next year. If that comes off, it would mark a 65% increase from today’s 405p.
One of the more bullish analysts, Berenberg, even raised its target price slightly after the results, from 680p to 700p.
While accepting that revenues felt slightly short, Berenberg saw the share price slump as “an overreaction given our perception of the cyclicality of the slowdown”.
My AIM wasn’t true
It’s sticking with its convictions, citing the “sharp reacceleration in growth” in January and “a significant runway of revenue growth ahead”.
Warpaint’s now integrating the recent £14m acquisition of fellow cosmetics challenger Brand Architekts, which it called an “exciting and relatively low risk opportunity to further bolster growth opportunities”. Let’s hope so.
My big worry when buying the stock was that I’d missed its stellar early surge. Inevitably, I’ve blundered into the slowdown. I’m choked, but still think the market reaction’s been harsh.
My morale has taken a knock and with the cost-of-living crisis dragging on, so have my expectations. If I had some spare cash in my trading account I might throw it at Warpaint. But I’m not selling anything to raise the funds.
Happily, plenty of my other portfolio holdings are on the warpath this year.
