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This UK share’s price has risen 220%! Is it a buy for me?

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At this time last year, cosmetics brand Warpaint London (LSE: W7L), available through supermarkets and other retailers, was a penny stock with a price of around 67p. It is no longer one, having risen over 220% since! With a market capitalisation of £166m, it is still fairly small, to be sure. But it is clearly growing fast. 

Warpaint London bounces back from the pandemic

And going by its latest results released earlier today, I think there could be even more share price increase in store for it. For the first-half of 2021, its sales rose by 36% from the same time last year because of a rise in both its UK and international revenues. There is a base effect at work here, because the pandemic impacted its sales last year. However, the company’s sales have almost returned to the levels seen in 2019, which indicates that the recovery is genuine. 

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The company has highlighted its UK growth in particular, as it expanded from sales through 56 Tesco stores last year and is now available at 1,300 stores. It has also mentioned growth in its US markets and rapid online sales as instrumental in the recovery. 

Warpaint London also reported a small statutory profit, a sharp improvement from the loss seen during the first-half of last year, again because of the pandemic. It is also debt-free and has increased its interim dividend to 2.5p per share too. It already has a dividend yield of 2.7%. 

Good outlook for the UK share

The company’s prospects look good too. It is launching in 84 Boots stores from early 2022. It is also looking to expand more across existing retailers and is in talks with additional ones too. I think that its alliance with Tesco can bode well, since the supermarket has seen good growth recently and can continue to expand. Further, with a recovery in consumer spending as the UK economy gets back on track, discretionary spending like that on cosmetics should get a boost. It is also due to launch in China, which is a rapidly growing market. 

What’s going on with its share price?

However, it appears that investors are unable to make up their minds about whether the results are good or bad. In early trading today, the UK share had dropped by 4%, but as I write now it is up by 3.7%. I can guess where the confusion comes from. 

Even though both the latest results and its outlook are good, Warpaint London’s trading update for the period up to August raises some doubts. Its revenue has increased by 18% for the eight months of 2021 for which data is available, compared to last year. This looks like a strong number. But it is smaller by 2.5% from the 2019 figure, which is the last pre-pandemic time period. Some of this is explained by some softening seen during the lockdowns. However, the number is smaller even for the July-August period suggesting continued weakness. 

My takeaway

Nevertheless, I would not make too much of it. I think there are clear signs of improvement in its performance. And I would give it some more time to make more progress. It is a fast growing stock that has managed the pandemic well and was profit-making before the pandemic. This UK share is a buy for me.

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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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