I’ve mostly bought FTSE 100 dividend stocks lately but in January I threw caution to the wind and bought a red-hot AIM-listed growth stock instead. And I haven’t regretted it for a moment. Cosmetics specialist Warpaint London (LSE: W7L) has been driving my portfolio upwards and I’m optimistic that’s going to continue.

I know little about the cosmetics industry, but I know that if a growth stock keeps hiking earnings guidance, it’s on the right track. Even better if it has ample cash reserves, no debt and pays dividends, too. Warpaint does all of this.

I wasn’t the only one to have spotted its potential. Its shares had been going gangbusters. That tempted me, but also scared me. What if this was speculative froth?

Warpaint is winning

So I did more research, and bought it anyway. I decided that if Warpaint was doing this well in the middle of a cost-of-living crisis, it could do even better when shoppers had more money in their pockets.

Its main brands, W7 and Technic, are sold both in the UK (including Tesco), and via local distributors and retail chains in the US and Europe. Warpaint has an e-commerce business in China too. These are early days, but the growth potential is huge.

In April, the group posted record full-year profits, up 136% to £18.1m, with “significant” growth in all geographic regions.

UK revenues jumped 17.6% but were beaten by US sales growth of 36.8%, while EU revenues trumped both jumping 60.5%. The board hiked the full-year dividend 27% to 9p a share. The trailing yield today is 1.53% but I think that underplays its progressive potential.

So far, I’m up 40.96% and happy I took the punt because Warpaint is on a charge. The board has just raised £31.5m by issuing seven million shares to broaden the shareholder base and position itself for future growth.

AIM opportunity

That hasn’t harmed existing shareholders. The Warpaint share price is up 145.05% over one year and a thunderous 503.11% over five.

Cosmetics is a competitive industry. Fashion changes quickly and social media has accelerated the process. While Warpaint’s affordable brands have been in demand during the downturn, shoppers could trade up when they have more cash to spend.

Persuading more US stores to stock its brands could be hugely rewarding, but requires very hard work. Its Chinese progress could fall victim to a trade war with the West. Trading at 31.68 times earnings, the stock is vulnerable to setbacks.

Yet the outlook is bright and I’m betting that Warpaint will keep charging along. I’ll buy more when I have the cash. Then I’ll start looking for my next growth stock. There are plenty of opportunities out there. Like Warpaint, I’m just getting going.