It may not be a ‘value’ stock but this cosmetics company is certainly on a roll

makeup

This column’s habitual territory is stocks whose share price chart goes from top left to bottom right, in the view that unloved can mean undervalued (at least as long as the business model is not broken and the balance sheet is sound enough to see the company through any near-term turbulence).

But even value-oriented portfolio builders can sometimes see the power of momentum investing and backing a stock when it is on a roll. Warpaint London may be just such a stock, judging by how the share price chart flows from the bottom left of the screen to the top right.

First researched here during the summer, the cosmetics specialist’s shares are trading at new record highs in the wake of yet another upbeat trading statement last month. Although the festive period will be as important as ever for sales and profits, Warpaint already feels confident enough to raise revenue and earnings expectations for 2023 once more.

The company, owner of the W7 and Technic brands, now sees sales reaching at least £85m and pre-tax income at least £16m: year-on-year advances of 33pc and more than 100pc respectively.

The foundations for further rapid progress in 2024 and beyond are already in place. The company continues to expand the range of retailers that stock its affordable, pleasure-and-comfort-bringing treats and also grow its geographic reach as its brands continue to resonate with consumers.

Warpaint London is adding one retailer in the Philippines and two in the Netherlands this quarter, one for each of W7 and Technic, while America’s CVS and Britain’s Boots will add W7 to the shelves of an increased number of shops in the first three months of 2024.

Forecasts of 10pc growth in both sales and profits in 2024 could yet be made to look conservative.

This is not to say there are no risks. Cosmetics is a competitive business and, like any company, Warpaint London will need to tend and invest in its brands to ensure they continue to resonate.

Investors could also be forgiven for fretting about the squeeze on consumer spending power from inflation and the lingering threat of a recession, although Warpaint’s carefully chosen price points should help here.

A multiple of forecast earnings of 20 for 2023 may not shout that the stock is a bargain either, although if the company can maintain its current trajectory that figure could prove deceptive.

All other things being equal, the multiple could fall if earnings keep rising and, in the meantime, a balance sheet that has net cash (even after lease commitments) offers further testimony to the company’s robust finances. A yield of some 3pc is a welcome bonus.

Warpaint London looks to be sitting pretty. Hold.

Questor says: hold
Ticker: W7L
Share price at close: 325p 

Update: Centamin

The performance to date of two of this column’s gold mining picks, Centamin and Resolute Mining, is dull at best, but Shanta Gold is off to a decent start since we looked at it in January and gold’s latest attempt to break through the $2,000-an-ounce mark could shine a spotlight on all our miners once more.

Many investors consider gold a useless, inert lump that carries a big “opportunity cost” – the returns you are foregoing from other assets such as cash – when interest rates are north of 5pc. Such savers will avoid both the precious metal and the miners that produce it.

Others fret about inflation, government deficits or both, and seek a haven in the form of something that has been money since time immemorial.

Central banks (and governments) want to quash inflation, given the long-term damage it brings, but they cannot keep interest rates too high for too long, thanks to the impact of elevated borrowing costs on economic activity and governments’ interest bills (and thus their ability to spend and prop up growth).

This is the dilemma that confronts policymakers and gold could be one hedge against something going wrong, or at least something unexpected happening.

The metal’s recent rise coincides with renewed concern over America’s “debt ceiling”, the Biden’s administration’s relentless spending and dollar weakness.

While gold miners bring risks of their own (geological, operational, geographic, financial, even meteorological), gold is trading at multi-year lows relative to shares and gold miners are trading at multi-year lows relative to the price of the metal itself.

Questor says: hold (Centamin, Resolute Mining and Shanta Gold)
Tickers: CEY, RSG, SHG
Share prices at close: 101.3p, 23.1p, 12.13p

Russ Mould is investment director at AJ Bell, the stockbroker

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