Should you add newly listed Warpaint London plc to your investing arsenal?

Paul Summers looks at the investment case for cosmetics firm and new-share-on-the-block, Warpaint London plc (LON:W7L).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Warpaint

Image: Warpaint: Fair use

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s always worth keeping a watch on companies that have recently come to the market. So long as the investment case is solid, those who buy shares early on can often enjoy quick capital gains. 

One recent example is colour cosmetics business Warpaint London (LSE: W7L). Since arriving on AIM back in November, shares in the Buckinghamshire-based company have jumped from its IPO price of 97p to 165p. A 70% return in just over three months? Now that’s a company I want to learn more about.

Looking good

Warpaint London focuses on offering consumers in the 16-30 age range “high quality cosmetics at affordable prices“. With more than 500 items, its flagship W7 brand is sold to high street retailers and independent beauty shops in over 40 countries. In addition to this, Warpaint also operates a close-out division which buys excess stock of branded cosmetics such as Max Factor before selling them on to discounters.

Although new to the stock market, a quick glance at its financial history suggests this could be a stock to buy and hold for the medium-to-long term. Annual returns on capital over the three-year period from 2013-15 were all around the 50% mark. Take into account the company’s net cash position and the fact that sales of lipstick and eyeliner will continue regardless of the macroeconomic picture and things start looking pretty attractive.

Another point worth mentioning is Warpaint’s relatively low free float. At the time of writing, only 36% of the company’s 65m shares are available to investors. The remainder are held by the company’s board, with joint CEOs Samuel Banzini and Eoin Macleod owning a combined 63% stake. In addition to guaranteeing that both will be highly motivated in pushing the business forward, you can also be sure that this limited availability will mean that any positive news (such as the introduction of a dividend) could lead to a significant jump in the share price.

Shares in Warpaint trade on a not-unreasonable 17 times earnings for 2017. What’s more interesting however, is that the price-to-earnings growth (PEG) ratio is only 0.7. As a general rule of thumb, anything less than one on this metric is indicative of a company offering excellent value for money given management’s plans for expansion.

Things to be wary of? Even those with meagre knowledge of the products will recognise the highly competitive nature of the cosmetics market. Warpaint’s dependence on two highly-motivated CEOs to drive the company forward could also backfire if one or both ever decide to leave. 

Bog standard profits

If adding Warpaint to your portfolio doesn’t appeal but you remain interested in small companies selling products that people buy on a regular basis, shares in Accrol Group (LSE: ACRL) might be a viable alternative.

Based in Blackburn, the £135m cap manufactures toilet rolls, kitchen rolls and facial wipes. It’s hardly exciting stuff but then some of the best investments never are. Since coming to the market last June, shares in the owner of brands such as Sofcell and Thirsty Bubbles have put in a very encouraging performance, rising 29% to 142p.

Trading on 11 times earnings for this year, reducing to 10 in 2018 so long as earnings growth estimates of 10% are hit, stock in Accrol still doesn’t look expensive. Like Warpaint, Accrol also has a low PEG ratio of just one for 2017. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »