Up 358% in 5 years – so why do I regret buying this red-hot growth stock?

This growth stock is on fire. Investors have made fortunes. Everyone except Harvey Jones, who fears he got his timing badly wrong.

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I’ve just taken my biggest risk in years and added a supercharged growth stock to my portfolio. Now I’m beginning to wish I hadn’t.

Lately, I’ve focused on dirt cheap, ultra-high yielding FTSE 100 stocks like Taylor Wimpey and Legal & General Group, or fallen stars like Diageo and Unilever.

I decided I need to add a bit more crash bang wallop to my portfolio by purchasing a few growth heroes. So I bought cosmetics company Warpaint London (LSE: W7L), an AIM-listed minnow with a market-cap of just under £300m. Scary territory for a cautious investor like me.

This means Warpaint

Every company has a mission these day, and Warpaint’s dream is to “ensure everyone has access to high quality cosmetics at an affordable price”. I’m good with that, provided it makes money by doing so and its share price rockets as a result.

It first came to my attention after posting a 106.4.1% in profits before tax in 2022 to £7.7m, with revenues up 28.1% to £64.1m.

Owner of the W7 and Technic brands, its products can be found here in Boots and in US chain CVS. It’s now extending its global reach, selling in hundreds of stores in the Netherlands and Philippines.

In November, management cheered investors by reporting that full-year 2023 group sales were beating market expectations at £85m, with pre-tax profit “in excess” of £16m. That’s more than double last year’s figure. Gross product margin were “robust” and rising.

Warpaint’s Q4 update on 12 January brought even better news as a bumper Christmas sent full-year sales to £89.5m, almost 40%. 2023 profit before tax is set to be at least £18m, up 134% over the year. The share price jumped again.

I left it a little late

Six days later, I bought its shares for 414.29p. By doing so, I broke a golden rule. I prefer to buy shares when they’re on the way down rather than up, to avoid overpaying. I favour value over momentum. Over the last 12 months, Warpoint shares are up a striking 135.08%. Over five years, they’ve skyrocketed 368.14%. They’re valued at 34.11 times earnings today and I’m worried that I’ve come to the party too late.

I’m one of the few Warpaint investors to be in the red, with my holdings down 7.67% at 380p. Obviously, these are early days. Warpaint’s numbers look fantastic. I’m sure the dip is down to profit taking. Which is why I should have waited for the dust to settle from January’s update.

Cosmetics is a competitive market and Warpaint has a long battle to build share, yet I remain optimistic. I’m encouraged by its solid balance sheet, with cash up from £5.9m to £9m over the last year, and lack of debt. Where the share price goes next will depend on 2024 results.

While I wait for the market to decide, I’ll return to my comfort zone of cheap FTSE 100 high-yielders. I’ve had enough excitement for the time being.

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.

Harvey Jones has positions in Warpaint London Plc. 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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