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I bought growth share Warpaint London (LSE: W7L) last year to inject some excitement and adventure into my portfolio. And I’ve got it. Unfortunately, it’s the wrong type, with the stock crashing 20% this morning (10 September) after publishing its first-half 2025 results.
The AIM-listed beauty specialist, owner of brands including W7, Technic and Super Facialist, sells affordable cosmetics through the likes of Boots in the UK, as well as in the Netherlands, the Philippines and the US. The shares were skyrocketing when I bought them, but the momentum drained away after full-year 2024 revenues, published in February, fell short of expectations. They still climbed 13.8% to £102m, but it wasn’t enough.
Yesterday, I was sitting on a loss of about 25%. After today’s shocker I’m down 44%. So what do I do now?
Warpaint plc is badly injured
Today’s numbers looked solid at first glance. Group revenue rose 8% to £49.3m, helped by February’s acquisition of Brand Architekts. UK sales jumped almost 16% to £18m, while overseas revenue edged up 3.2% to £31.3m. Gross margins improved 250 basis points to 45%. Management flagged up growth opportunities in Boots and Superdrug stores.
But profit before tax plunged 41% to £6.4m, largely due to foreign exchange losses and acquisition-related costs. Adjusted earnings per share fell 13% to 8.5p. The group did at least raise its interim dividend from 3.5p to 4p. The trailing yield is now 4.73%.
What really spooked investors was the guidance. The board now forecasts adjusted EBITDA between £23.5m and £25.5m, sharply down from previous guidance of approximately £29m. Management blamed weak consumer sentiment in the UK, uncertainty in the US, and the collapse of a long-standing partner, Bodycare, which owes £300,000. With the shares now down 50% over 12 months, I’m wondering whether to cut and run.
Never sell in a panic
Warpaint is still expanding, margins are improving, and Christmas trading should help. But sentiment has soured.
Under strict Motley Fool trading rules, I can’t buy or sell a stock within two full days of writing about it. That’s gives me time to cool off. Selling today would only turn today’s paper loss into a real one. There’s a chance it could be mitigated, if bargain hunters move in.
Buying is risky too. In my experience, problems like the ones we see today can drag on. There may be more bad news in the pipeline. Another reason to let the dust settle.
The big question is whether the long-term story still holds and you know what, I think it probably does. So I’m going to keep watching and see if management can give Warpaint a rosy glow.
AIM-listed recovery play
There may even be a case for investors who don’t yet hold the stock to consider buying at today’s much lower entry point, but they must be ready for more volatility. I’d advise extreme caution.
There’s a danger I’m holding for the wrong reasons. Basically, because I refuse to admit I got it wrong. But if the inflation eases and interest rates fall, a beaten down consumer stock like this one could rally hard. For now, Warpaint stays in my portfolio while I lick my wounds.
