WES share price in focus
Wesfarmers is a diversified Australian conglomerate headquartered in Perth. It is primarily a listed investment company with outright ownership or significant stakes in retail, chemical, fertilizer, industrial and safety brands and products companies.
Weiss Farmers 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 is the Coles Group, which it bought in 2007 and spun off 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 final 52 percent in 1994 for $594 million.
Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy. Wesfarmers has been a leading blue-chip stock on the ASX for decades and is known for paying consistent dividends.
Key metrics
If you’ve ever tried to read a company’s income statement on an annual report, you know it can be quite complicated. Although there are many figures you can draw from this statement, three are important. Revenue, Gross Marginand profit.
Income is important for obvious reasons – it all starts here. If you can’t generate revenue, you can’t generate profit. What we are concerned with is not the absolute number, but the trend. WES last reported annual revenue of $44,189m with a Compound Annual Growth Rate (CAGR) 9.2% per annum over the last 3 years.
Moving down to the income statement, we then arrive at gross margin. Gross margin tells us how profitable the underlying products/services are – before you take into account all overhead costs, how much does the company make from selling $100 worth of goods or services? WES’s most recently reported gross margin was 34.0%.
In the end, we benefit, which is the most important figure. Last financial year Wesfarmers Ltd reported profits of $2,557m. 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 reasonable buffer of safety. A scale that we can see. Net debt. It is simply the total debt minus the company’s cash holdings. In the case of WES, current net debt sits at $10,443m.
A higher number here means that the 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 debt the company has compared to shareholder ownership. In other words, how leveraged is the company? WES’s debt/equity ratio is 131.4%, which means they have more debt than equity. This isn’t always a bad thing if the company has stable earnings 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 making as a percentage of its total equity – a higher number indicates that the company is allocating capital well and creating value, while a lower number indicates that profits could offer more value if they were paid out to shareholders as dividends. WES generated an ROE of 30.3% in FY24.
What to make of WES shares?
With strong revenue growth over the past 3 years, dividends trending upwards, and 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 appropriately. To learn more about share price evaluation, you can sign up for one of our many free online investing courses.
