The Wesfarmers Ltd (ASX: WES) share price is almost at its all-time high, except when it was briefly higher in 2015. It has bounced between $40 and $45 for many years, but it’s now almost $46.
Investors seem to enjoy the fact that Wesfarmers has decided to call it quits on the United Kingdom & Ireland Homebase/Bunnings venture. The UK attempt was a big cash burn, costing well in excess of $1 billion.
The market now seems to think that Wesfarmers is a better option because the risk of the expansion is gone. Perhaps they’re right, in a few years Wesfarmers could still be sitting on a loss-making business like Woolworths Limited’s (ASX: WOW) Masters.
In the short-term it’s good that Wesfarmers stepped away. But this could turn into ‘once bitten, twice shy’ for the conglomerate. Shareholders will be much more anxious about the company expanding offshore.
The current portfolio of retail-related businesses is pretty strong as a group, but Bunnings is the main driver. Wesfarmers is letting go of Coles and the others aren’t likely to do amazing things with the growth of online shopping, particularly Amazon.
To continue being a strong business, Wesfarmers must acquire other businesses. Being limited to Australia wouldn’t be a good thing. There were rumours management were looking at Healthscope Ltd (ASX: HSO) and Fletcher Building Limited (ASX: FBU), but those opportunities seem to have disappeared.
There aren’t too many sizeable opportunities that Wesfarmers could jump on at the moment, with most businesses trading quite expensively.
Wesfarmers currently has a handy grossed-up dividend yield of 7%, which isn’t bad for income investors and it’s trading at 19x FY18’s estimated earnings. I wouldn’t buy at the current share price. I prefer it to some other blue chips, but I think there are better growth options on the ASX.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. 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 Scott Phillips.