When to use Energy vs Momentum

I came across this question:
A pellet with velocity 200 ms⁻¹ and mass 5.0 g is fired vertically upwards into a stationary block of mass 95.0 g. The pellet remains in the block. The impact causes the block to move vertically upwards.
What is the maximum vertical displacement of the block?

I initially used conservation of energy to (incorrectly) answer this question:
KE of pellet = GPE of block
½(5x10⁻³)(200²) = (95x10⁻³+5x10⁻³)(9.81)Δh
⇒ Δh = 101.9 m

I thought the above value looked too large, so I re-attempted the question using conservation of momentum:
momentum of pellet = momentum of block
(5x10⁻³)(200) = (95x10⁻³+5x10⁻³)v
⇒ v = 10 ms⁻¹
v² = u²+2as
0 = 10²+2(-9.81)s
⇒ s = 5.1 m
Which is the right answer.

What did I do wrong in the first approach?
I'm guessing I made an assumption which means I can't use conservation of energy to answer the question. I mean yes some energy is lost as heat and sound and whatnot in the collision but I didn't think it'd make such a huge difference in the result.