Local investors, particularly those with a more sceptical lens on the world, will usually tell you that though Clicks is a great business and clearly a force to be reckoned with, the valuation makes it unappealing. It’s true that Clicks is expensive relative to many other retailers, but does that mean it’s always too expensive to buy?
Clicks is a member of the illustrious group of quality stocks on the JSE that trade at stubbornly high multiples. But even within the broader category of “expensive”, we can find examples of sensible and silly entry points. It would be incorrect to assume that Clicks is always too expensive to provide outsized returns, in the same way that it would be wrong to think that smaller companies at low multiples are always a buy.
Let’s prove this point. An easy way is to compare the performance of Clicks with the JSE top 40. Ignoring dividends and using an ETF as an investable proxy for the index, we find that the return over five years is in favour of the index (79.2% vs 71.3%). That’s a compound annual growth rate of 12.4% and 11.4% respectively since May 2020, when Covid was in full swing. As strong a company as Clicks is, it hasn’t beaten the index over that period and certainly hasn’t rewarded investors for taking single-stock risk. Sure, the index has enjoyed an incredible rally in gold stocks, but that’s the whole point of diversification. Through that lens, it would be easy to dismiss Clicks as an expensive stock that can’t add value to a portfolio.
But what about over shorter periods, for those who are more active in the market? Naturally, there is a significant divergence in performance. Over one year, Clicks is up 30.6% and the index is up 17.8% — both strong, but clearly in favour of Clicks. But year to date is a different story, with the index up 11.4% and Clicks up just 4.9%.
Of course, the key to smoother returns is to extend the investment holding period, allowing the market to do its thing along the way. This is the buy-and-hold strategy and it works, which is why ETFs are particularly popular tools. But what is surprising is the volatility of returns at Clicks, particularly when you consider how steady the underlying earnings growth has been. Defensive stocks don’t necessarily deliver consistent returns for investors, as high multiples have plenty of space to unwind and then expand again. Therein lies the opportunity, one that is hidden by simply writing stocks off as perennially expensive. Expensive relative to what, exactly?
Arguably there are too many academic debates comparing the multiples in one sector with those in another. An understanding of valuation theory is important, but it misses the overlay of prevailing sentiment in the market. Human emotions are a powerful force, often responsible for the difference between market darlings and value traps. Ignore these emotions at your peril.
Sure, everyone understands that health and beauty retailers are completely different to clothing retailers. No matter how strong a clothing retailer has become at selling affordable clothing, it’s still not as defensive as selling medicine and soap. When you combine the hierarchy of needs with the durability of the underlying product (that is, how often it needs to be bought), you’ll see where the most defensive categories are. This is why truly defensive retailers trade at premium multiples, but just how big should that premium be? Should we be using theoretical models to debate whether 20, 25 or even 30 is too high or too low as a p:e?
Therein lies the opportunity, one that is hidden by simply writing stocks off as perennially expensive
One of the safest approaches is to compare the current multiple of any stock with its historical averages, while asking questions about macroeconomic trends and whether there have been any major changes in the company or the risks and opportunities it faces. After all, a liquid share price is the result of market participants battling it out, expressing their views on what the valuation should be. Buying below the average creates a margin of safety and the opportunity for margin expansion. Buying above the average is looking for trouble.
Over five years, the p:e at Clicks has averaged 31.3. The current multiple is 31. Don’t be fooled by this coincidence — there’s been plenty of volatility in the multiple. It touched 41.5 during that period and dropped to as low as 22.1. Even in a stock such as Clicks, the entry point makes a significant difference, particularly over shorter holding periods.
Is 31 a high p:e by most standards? Sure. Is 13.3% growth in the Clicks interim dividend enough to support such a multiple? Based on the strong rally in recent weeks in response to that announcement, it seems like it is. Though return on equity (ROE) is up 2.8 percentage points to 46.2%, is that sufficient to support a price/book of 14.5, which means the effective ROE is just 3.2%? On paper, probably not. In practice, the market is telling us that the current valuation of Clicks is comfortable, well in line with historical averages.
The health and beauty category has plenty of growth runway in South Africa and Clicks is perfectly positioned to take advantage of it. Does it face potential disruption from online alternatives? Absolutely. Does it have elements that contribute to likely success despite this? Yes, like the Clicks ClubCard rewards programme that practically defined how such programmes should work in South Africa.
Clicks, like all quality stocks, can sometimes be “cheap” — it’s just a matter of being willing to define cheap with reference to historical averages rather than in comparison with other retailers. Many investors have made a lot of money doing exactly that.
Drugs that treat diabetes and obesity are changing the dynamics of the global weight-loss industry, leading to accelerating sales for local pharmaceutical groups.
Clicks’s interim results, released in April, show that sales of drugs that treat type 2 diabetes and obesity were higher in the first half of 2025 than in the entire previous year. Clicks sells GLP-1 drugs such as the blockbuster Ozempic, as well as Mounjaro, which is produced in South Africa by Aspen Pharmacare for Eli Lilly. These slow down the digestion of food and can reduce appetite so people eat less and lose weight.
Stavros Nicolaou, Aspen’s senior executive for strategic trade development, says the GLP-1 market is the fastest growing in value terms in the South African private market. Mounjaro, he says, is expected to soon become the leading GLP-1/GIP combination drug and one of the top South African private sector pharma products.
“As we only have about four months of sales, we cannot provide full-year sales projections at this point. However, this provides an indication of market potential.”
In early May WeightWatchers, once the bellwether of the weight-loss industry, filed for bankruptcy as it struggled to compete against Ozempic, Mounjaro and Wegovy. WeightWatchers, founded more than 60 years ago on the old-fashioned dictum of healthy eating choices, said it was filing to write off $1.15bn of debt and would transition into a telehealth services provider. At its peak in 2018, WeightWatchers had 4.5-million subscribers and its stock traded as high as $100.
Oprah Winfrey, a longtime ambassador of the company, quit the WeightWatchers board last year and admitted to using Ozempic. Ozempic has had huge take-up, with a share price performance to match. At its peak, Ozempic’s Danish maker, Novo Nordisk, was worth more than the entire Danish economy.
GLP-1 drugs differ from other weight-loss medications mainly in their mechanism of action, which focuses on regulating blood sugar and suppressing appetite through the gut. Other medications often seek to suppress the appetite or boost the metabolism.
UBS estimates that 40-million people will be using GLP-1 drugs by 2029, 44% of them in the US. It forecasts that sales will be worth $126bn by then, a six-year compound annual growth rate of 30%.
Unfortunately for Clicks, these drugs won’t fatten its margins as drug prices are regulated by the single exit price rule; retail pharmacy dispensing fees are also regulated. — Adele Shevel
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