The Wesfarmers Ltd (ASX: WES) share price has fallen 0.18% today to be trading just shy of its $45.53 record high.
So, are the Aussie conglomerate’s shares overvalued right now or is there further growth ahead in 2020?
Why is Wesfarmers rocketing higher right now
The Wesfarmers share price is now up more than 40% since the start of 2019. That’s quite impressive capital growth for an ASX 20 company that also has a 3.96% dividend yield.
Wesfarmers’ last price-sensitive announcement was in September 2019 when it announced the completed acquisition of Kidman Resources for $1.90 per share. Wesfarmers also took a 50 percent stake in the Mt Holland lithium mine to expand its lithium exposure.
A number of ASX 200 lithium shares rocketed higher in January including Pilbara Minerals Ltd (ASX: PLS) and Orocobre Limited (ASX: ORE). Part of the Wesfarmers’ share price rise could be investors speculating on the value of its lithium interests in 2020.
The Perth-based conglomerate also holds a significant stake in Coles Group Ltd (ASX: COL) following its November 2018 spin-off. Wesfarmers retained a 15% stake in the supermarket business and that could also be driving the Wesfarmers share price higher.
Should you buy Wesfarmers shares?
I’ve always found Wesfarmers to be a difficult business to properly value. The $51 billion conglomerate has businesses in a wide range of industries which can complicate the fundamental valuation as a group.
I think the decision to divest its $860 million coal mining assets in August 2018 has paid off for Wesfarmers. The group made a play for Lynas Corporation Ltd (ASX: LYC) in 2019 but the opportunistic takeover bid was rejected by the rare earths group.
The February results season will be one to watch, especially with the Wesfarmers share price near an all-time high. Given the group’s shares are trading at 26.20 times earnings, I’d expect to see a valuation dip if earnings miss the mark.
However, given Wesfarmers’ diverse business interests and income streams, I think it could still be a good buy for income in 2020.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of 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.
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