WES share price in focus
Wesfarmers is a diverse Australian congregation in Perth. It is primarily a listed investment company with wholly owned or significant stake in retail, chemical, fertilizer, industrial and safety brands and products companies.
Wesfarmers has a long history of buying businesses, reinvesting in them to build cash flow and assets, then selling them at a higher price. A good example of this is the Coles Group, which it bought in 2007 and reduced in 2018. However, the majority of the company’s operating profit (over 50%) comes from Bunnings Warehouse, the #1 hardware and home improvement business in Australia (and the country’s most trusted brand in 2023 and 2024). Wesfarmers originally bought into Bunnings in 1987, buying the last 52% in 1994 for $594 million.
Household names owned by Wesfarmers include Blackwoods, Commit, Target, OfficeWorks, and Priceline Pharmacy. Wesfarmers has been a blue chip stock on the ASX for decades and is known for paying consistent dividends.
Key measurements
If you’ve ever tried to read a company’s income statement over an annual report, you know it can be very complicated. While there are several figures to draw you from this statement, three are key Revenue, Gross Marginand profit.
Income is important for obvious reasons – it all starts here. If you can’t collect revenue, you can’t generate profit. What we are concerned with is not so much the absolute number, but the trend. Weiss last reported annual revenue of 44,189m, with one Compound Annual Growth Rate (CAGR) 9.2% per annum in the last 3 years.
Moving down to the income statement, we then arrive at gross margin. Gross margin tells us how profitable the underlying product/service is – before you take overhead costs into account, how much money does the company make selling $100 worth of goods or services? Weiss’ most recently reported gross margin was 34.0%.
Finally, we get profit, which is the most important figure. In the last financial year, Wesfarmers Limited reported a profit of $55557 million. This compares to 3 years ago when they made a profit of ₹2,380m, representing a CAGR of 2.4%.
Financial health of WES shares
The next thing we need to consider is the capital ‘health’ of the company. What we are trying to assess here is whether they are generating a reasonable return on their equity (total shareholder value) and have a decent safety buffer. One measure we can look at is Net debt. It is simply the company’s cash holdings minus total debt. In the case of WES, current net debt sits at 10,443m.
A high number here means that a company has a lot of debt, which potentially means higher interest payments, higher volatility, and higher sensitivity to interest rates. A negative value, on the other hand, indicates that the company has more cash than debt (a useful safety buffer).
However, the argument is more important Debt/Equity Percentage. It tells us how much the company owes to shareholders. In other words, how much profit is the company making? WES has a debt/equity ratio of 131.4%, which means they have more debt than equity. This isn’t always a bad thing if the company has stable revenue and good cash flow, but it certainly creates more risk.
Finally, we can see Return on Equity (ROE). ROE tells us how much profit a company is earning as a percentage of its total equity – a high number indicates that the company is allocating capital well and creating value, while a low number indicates that the profits could represent more value if they were paid out to shareholders as dividends. Weiss generated an ROE of 30.3% in FY24.
What to make of WES shares?
https://www.youtube.com/watch?v=Qpuru-blkdc
With strong revenue growth over the last 3 years, an upward trend in profits, and a solid ROE, WES shares may be worth adding to your ASX share price watch list.
Please keep in mind that these figures are important but should only be the beginning of your research. It is important to get a good grasp of the company’s financials and compare it to its peers. It is also very important to make sure that the company is priced fairly. For more information on the value of share prices, you can sign up for one of our many free online investment courses.
