Illustrative Image: Car dealership | Phone (Photo: Freepik) 
Growth stocks aren’t terribly common on the JSE. In stark contrast, the US market is overflowing with them. These stocks boast demanding valuations that are powered by the underlying American Dream and a bullish DNA that permeates American business culture, in which nothing is ever too big or too optimistic.
At the tip of Africa, meanwhile, browbeaten South African investors have become accustomed to a cocktail of almost no GDP growth and single-digit earnings growth from most of our companies. We get excited when companies achieve double-digit growth in a year. In the US, there are stocks growing at that rate every three months.
This is why our market features so many stocks trading at high single-digit and low double-digit price/earnings multiples. If the market is light on growth expectations, then valuations will be modest – especially in a country where interest rates are high and thus fixed income investments are appealing.
Thankfully, there are a handful of local companies that make things more interesting. These growth stocks are either disrupting South African sectors or expanding across multiple high-growth regions. Either way, investors sit up and pay attention, as these stocks are a rare breed around here.
And if something goes wrong in the growth story, even just temporarily, the market reverts to a particular brand of pessimism that is as South African as a braai with friends before the Springboks game. WeBuyCars found that out the hard way in the past week. We deal with that first, followed by a short note on the successful Optasia IPO, and the great interest from local investors in that story.
Reason for the WeBuyCars share price drop
The WeBuyCars share price has shed about a sixth of its value in the past week. Despite this 16.7% drop in the price, the year-to-date performance is still an increase of 24%. I’m long on WeBuyCars (I’ve held it since it was cut loose from Transaction Capital), so that’s still a great performance in 2025. It’s just much less pretty than it used to be.
The reason for the sell-off in the market is simple, in theory at least: WeBuyCars released very disappointing earnings growth numbers in a trading update for the year ended September 2025. The complexity lies in figuring out which numbers to actually look at.
The expected increase in core headline earnings per share (Heps) was between 0.8% and 6%. In terms of per-share numbers, this is the right one to focus on, as Heps without the adjustments is up by more than 100% due to substantial once-offs in the base period related to the listing process and associated transactions. There is no value in extrapolating a growth rate that has been driven by distorted numbers.
Speaking of distortions, even core Heps isn’t a clean enough number. You see, the listing led to an increase in the number of shares in issue, but it was due to Transaction Capital trying to fix its mess rather than WeBuyCars benefitting from fresh capital in an IPO process.
Read more: Transaction Capital’s WeBuyCars gears up for a separate listing on JSE
Boxer finds itself in a very similar situation based on how Pick n Pay set it free. This means that a better way to look at the business is to consider core headline earnings rather than core Heps. The per-share impact will normalise in years to come, with the growth rates in core headline earnings and core Heps likely to converge.
Core headline earnings were up by between 12% and 17% for the year, which doesn’t seem so bad, does it? Why was the market so angry about a mid-teens growth rate in a year when the car industry experienced so much disruption? The answer can be found by splitting the year into two halves. You see, the problem is that the six months to March saw an increase of 26.4% in core headline earnings. As the full-year growth rate is so much lower, we immediately know that there was a substantial slowdown in the second half of the year. To figure out just how slow, we need to do some digging.
Last year, WeBuyCars made R402-million in the six months to March 2024 and R413.4-million in the six months to September 2024. This year, it made R508.2-million in the six months to March 2025. If we take the midpoint of its guidance for the full year, it made roughly R430-million in the six months to September 2025. So, if we isolate the second half of the year, it grew by less than 4% year-on-year! It was also way down in absolute terms versus the first half of the year, despite no such seasonality being visible in the comparable period.
Read more: WeBuyCars’ billion-rand bet — strong earnings, rapid expansion and market risks
The update, unfortunately, doesn’t give any detail about revenue, gross profit or operating expenses. At this stage we have no idea whether the substantial slowdown in earnings growth is because of growing pains in the footprint or a deeper problem with disruption in the market. This means that the market is left to its own devices to speculate, an ugly situation that will persist until detailed results come out in two weeks on 17 November. Hindsight is always perfect, of course, and WeBuyCars is still new to the listing game, but there’s a lesson in here for investor relations and PR teams around landing bad news with almost no associated explanation for the performance.
The most painful (and likeliest) reason would be that the influx of cheap Chinese and Indian cars has put downward pressure on the used values of all the legacy brands, leaving WeBuyCars with inventory that dropped in value before the company could get it out the door. It’s very difficult to run a business such as this in an environment or rapidly dropping values, even when you have the impressive stock turn of WeBuyCars.
It also doesn’t help their case that CMH came out with such impressive numbers under the circumstances, showing that demand for new cars is in good shape. Of course, with CMH trading at a single-digit price-to-earnings ratio (p/o) and WeBuyCars coming into this update on a p/e of nearly 25x based on core Heps over the last 12 months, the former was primed for a positive surprise in the market and the latter was at risk of disappointing everyone.
Growth stocks are all about high expectations. Therein lies the opportunity and the risk.
Speaking of high expectations, here comes Optasia
There’s a new kid on the block on the JSE. Optasia is a fintech business that operates a financial solutions platform in emerging and frontier markets. It builds bridges between financial institutions (such as banks) and consumers who need access to microfinance solutions (such as airtime credit and very short-term loans). This market is extremely hard to service profitably, so having great tech is the key.
The market has lined up to support the IPO, with far greater demand for the shares than supply. This bodes well for the share price to jump higher on market debut, the clearest sign of a successful IPO. It certainly helps tremendously that FirstRand threw its hat into the ring by acquiring 20.1% of Optasia at R19 per share, the very top of the IPO range. It was obvious after that announcement that the pricing of R19 would be achieved and that the full amount would easily be raised. With a market cap of R23.5-billion, Optasia arrives on the market with a bang on Tuesday, 4 November.
WeBuyCars is a cautionary tale about what can happen when a growth stock slows down, so investors should always remain cautious of hype and great expectations when allocating capital. Given the level of interest in the IPO, I decided to sit this one out (I would’ve only received a tiny allocation anyway, just like every other retail investor). If history is anything to go by, the share price will calm down after an initial period of bullishness. When and if that happens, I’ll be very interested in adding it to my portfolio.
For now, I just have some WeBuyCars wounds to lick instead. DM