Why the Wesfarmers (ASX:WES) share price lost momentum in November

Wesfarmers shares lost momentum in November.

| More on:
Businessman holding bear figurine in one palm and bull figurine in other

Image source: Getty Images

The Wesfarmers Ltd (ASX: WES) share price lost momentum during November 2021.

In the first half of November, Wesfarmers shares rose by more than 5%. Indeed, between mid-October and mid-November the Wesfarmers shares had actually risen by 11%.

But the second half November saw the diversified retailer erase those gains over he second half of the month. It ended November 2021 essentially flat from where it was at the start of the month.

What’s going on with the Wesfarmers share price?

It’s the buyers and sellers of the month that decade how the share price performs.

There were a few interesting events that occurred last month.

On 8 November 2021, Wesfarmers announced that it had entered into a scheme implementation deed with Australian Pharmaceutical Industries Ltd (ASX: API) for a cash consideration of $1.55 per share. Wesfarmers currently owns a 19.3% shareholding of API.

The API board had unanimously recommended that API shareholders vote in favour of the scheme, though only if there wasn’t a superior proposal.

Wesfarmers believes it has opportunities to invest and strengthen the competitive position of API and its community pharmacy partners by expanding ranges, improving supply chain capabilities and enhancing the online experience for customers. Wesfarmers thinks API can form the start of a health and beauty division.

The Wesfarmers share price will be in focus this week as Woolworths Group Ltd (ASX: WOW) has come in with a higher bid for the pharmacy business of $1.75 per API share, which is 12.9% higher than the Wesfarmers bid. Woolworths also said it’s willing to explore potential alternative control transaction structure options such as a takeover bid with a minimum acceptance condition of 50.1% and/or other transaction structure that would be subject to receiving 50.1% of API shareholder support.

Broker thoughts on the Wesfarmers share price

Sometimes, investors may take into account what some of the leading brokers think about a business.

In mid-November, Citi released a note that still rated Wesfarmers as a sell because the broker thought that the Wesfarmers share price was too expensive. It thought that the takeover would add to the value of the overall business though.

Let’s look at the earnings valuation from Citi on Wesfarrmers. The broker thinks the Wesfarmers share price is valued at 27x FY22’s estimated earnings.

Latest trading update

When Wesfarmers held its AGM, it gave a trading update which said its retail businesses have been effective in managing the disruptions in the global supply chains and are well positioned with inventory for the Christmas trading period.

In Bunnings, sales were “robust” keeping in mind the lockdowns. Sales growth from commercial customers has been strong which, when combined with elevated online sales, have partially offset the impact of lower consumer sales growth.

Kmart and Target sales were impacted by store closures, but Catch sales have benefited from the shift to online during the lockdowns.

Officeworks sales have benefited from the strong demand to support customers working and learning from home, but the shift in sales mix to technology and furniture products meant margins are being impacted.

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 over 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 January 13th 2022

Motley Fool contributor Tristan Harrison 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 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