There’s been a lot of talk about the Amazon effect and implications it will have on major retailers such as Coles, owned by Wesfarmers Ltd (ASX: WES), and Woolworths Limited (ASX: WOW). For investors, those implications could lead to an opportunity. This year has been a bit of a bumpy ride for Wesfarmers shareholders who saw the price of their stock sink by more than 10% when it began heading down from above $45 in late March to land on a touch above $40 in early June. Hindsight now tells us that was a window of opportunity as the Wesfarmers…
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For investors, those implications could lead to an opportunity.
This year has been a bit of a bumpy ride for Wesfarmers shareholders who saw the price of their stock sink by more than 10% when it began heading down from above $45 in late March to land on a touch above $40 in early June.
Hindsight now tells us that was a window of opportunity as the Wesfarmers share price has managed a steady recovery since then and closed on Tuesday at $43.20.
Does that mean it’s too late to buy shares in Wesfarmers?
Wesfarmers is a highly diversified business with divisions covering supermarkets, liquor, hotels and convenience stores. It also spreads across home improvement, office supplies and department stores. In addition to its retail ventures it has an industrials division with businesses in chemicals, coal, energy and more.
And, as it’s been around in one form or another for more than 100 years, it is certainly a company that should never be dismissed lightly.
So when an opportunity presents, Wesfarmers is definitely worth a closer look.
The Wesfarmers share price is trading at about 17x trailing earnings which looks a bit more appealing than Woolworths which is trading at close to 24x trailing earnings and far more attractive than Myer Holdings Ltd (ASX: MYR) which is going for more than 47x earnings.
But Wesfarmers is far from being simply a retailer and those figures should be viewed with this in mind.
In financial year (FY) 2017 the conglomerate reported a net profit after tax of $2.87 billion, boosted by its industrials division, and finished the year with $4.17 billion in free cash flow, balanced against about $4.32 billion in net financial debt.
Wesfarmers also reported a return on equity of 12.4%, up on FY16’s figure of 9.6%.
Wesfarmers also has a strong dividend history with a five-year growth rate exceeding 5%.
With all this in mind, it seems the Amazon effect may present an opportunity for investors to get in on Wesfarmers, a business which is perhaps too often and too closely associated with Coles.
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Motley Fool contributor Steve Holland has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.