Here’s why the Wesfarmers (ASX:WES) share price is down 4% in a month

It’s been a disappointing month for the retailing giant.

| More on:
A sad little girl sits in a supermarket trolley, indicating a decline in share market price

Image source: Getty Images

The Wesfarmers Ltd (ASX: WES) share price is having a month to forget.

At the time of writing, shares in the retail conglomerate are trading for $54.95 – up 0.33%. Over the month, however, it’s been less cheery for the company – down 3.48%. For context, despite how turbulent it may have felt, the S&P/ASX 200 Index (ASX: XJO) has actually increased 1.74% over the same time.

Let’s take a closer look at what’s going on.

What’s up with Wesfarmers?

The first major story that had a negative impact on the Wesfarmers share price was the news Sigma Healthcare Ltd (ASX: SIG) had also entered the fray to take over Australian Pharmaceutical Industries Ltd (ASX: API) with a mostly scrip bid for the retail pharmacist.

Sigma put in a bid with an implied value of $1.57 per share – or $773 million for the company. As Motley Fool previously reported, Sigma put a higher bid to API’s board than Wesfarmers, albeit a mostly scrip one.

Sigma’s proposal would see API’s shareholders walking away with 35 cents of cash and 2.05 Sigma shares per API share they held at the time of the proposed merger. This valuation is based on Sigma’s share price at the time the offer was made.

Since that time, Wesfarmers has acquired a nearly 20% stake in API, buying out the portion owned by Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) for $1.38 per share. It has also agreed to pay Sol Patts any additional funds owed to it should its proposed merger with API be successful.

The Wesfarmers share price rose on this strong indication it would be successful in buying API.

What else is affecting the Wesfarmers share price?

Lockdowns are coming to an end in Australia. Sydney left its 15 weeks of COVID restrictions last Monday. Melbourne will leave on Thursday and the ACT is slowly exiting its stay-at-home orders.

Lockdowns have historically been good news for the Wesfarmers share price. The thinking goes with everyone stuck at home and their consumption options limited, people will spend their money on what they can and that includes shopping (either online or in-person) at Bunnings, Kmart, or Officeworks – all Wesfarmers brands. Wesfarmers shares rocketed 11% during the latest delta outbreak.

With lockdowns coming to an end, investors may be seeing the time of supercharged revenues also coming to an end – and thus want to sell on a high.

This could partially explain the falling Wesfarmers share price. Of course, correlation does not equal causation.

Wesfarmers share price snapshot

Over the past 12 months, the Wesfarmers share price has increased 14.0%. Year-to-date, it is up 6.74%. Both of these figures are lower than the growth rate of the ASX 200.

Wesfarmers has a market capitalisation of about $62 billion.

Should you invest $1,000 in Wesfarmers right now?

Before you consider Wesfarmers, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Wesfarmers wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Marc Sidarous has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Retail Shares