Warpaint Acquisition of Barry M is a Masterstroke!

Warpaint London (LSE AIM: W7L) is by far one of the most efficient and profitable operators in the colour cosmetics space. And don’t take my word for it, here is their ROE/ROA and ROIC over the last 3 years ([https://stockanalysis.com/quote/aim/W7L/financials/ratios/): ](https://stockanalysis.com/quote/aim/W7L/financials/ratios/): ) ROE: 25%, 30%, 32% ROA: 15%, 19%, 20% ROIC: 25%, 34%, 35%  The Barry M acquisition exemplify why Warpaint enjoys such a high ROIC (which according to many studies is a key predictor of long-term stock performance/valuation: [https://www.financierworldwide.com/stock-price-and-roic-what-drives-performance](https://www.financierworldwide.com/stock-price-and-roic-what-drives-performance)). Explanation below:  For context, Barry M, is a cult British cosmetics brand that has been around since 1982, they were the first to offer 100 nail polish colours, they were highly popular with the punks and drag queens, but since their founder Barry Mero died in 2014, the brand has been in a downtrend, and recently filed for bankruptcy. As of its last annual filing in Feb 2025, Barry M had £15M annual revenues.  Warpaint snapped Barry M IP, inventory and distribution network for a mere £1.4M, for which they got 1300 prominent distribution points with Main street retailers, £15M in legacy revenues, and over 650K social media followers; reference, W7, Warpaint largest brand, has 365K social media followers. Warpaint should have no issues outsourcing the production of Barry M SKUs to its 25 factories strong manufacturing sub-contracting network in China. Assuming Barry M products where to eventually match Warpaint’s other product lines in profitability (21% EBITDA margin), this would result in £3M in additional EBITDA for Warpaint at Barry M’s last annual rate if £15M. Even if were to assume that Barry M revenues had shrunken down to £10M since their last annual results in Feb 2025, we are still looking at a potential annual £2M in EBITDA contribution from a £1.4M acquisition price, or 140%+ ROIC! And all of this assumes no-cross distribution benefits as a result of the deal. Truly, a magnificent acquisition.  Its worth noting that this is not Warpaint first acquisition. Warpaint acquired Brand Architekts in Dec 2024 for £13.9 million. At the time, BA had been losing money for 4 years straight ([https://www.brandarchitekts.com/assets/files/241023-Results-Investor-Presentation.pdf](https://www.brandarchitekts.com/assets/files/241023-Results-Investor-Presentation.pdf)). Yet, within one year of the acquisition, Warpaint managed to eek out just under £1M  in EBITDA profits from BA’s business ([https://polaris.brighterir.com/public/warpaint\_cosmetics/news/rns/story/wk1k32r](https://polaris.brighterir.com/public/warpaint_cosmetics/news/rns/story/wk1k32r)). And this is likely the start.  Despite all of this, Warpaint continues to trade at a material discount to peers, largely because their organic growth rate slowed down in 2025 due one of their clients filing for bankruptcy and US tariffs stalling their US growth. Should the company continue to generate such a high ROIC in 2026 and beyond, the stock is likely to materially re-rate before long. In a sense, Warpaint reminds of ELF Beauty back in 2014, which was an emerging value player at the time, but there is a key difference, Warpaint is far more profitable and far more efficient than ELF ever was then and now.