The Wesfarmers share price is trading at 2-year lows. Time to plough in?

Wesfarmers shares have been falling. Is it time to jump on the conglomerate?

| More on:
A woman sits with her hands covering her eyes while lifting her spectacles sitting at a computer on a desk in an office setting.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Wesfarmers share price hit a two-year low today
  • Wesfarmers is facing inflation and supply chain impacts
  • I think that it’s a long-term opportunity because of the diversified nature of the business

The Wesfarmers Ltd (ASX: WES) share price has been sliding lower and today hit a two-year low of $44.65. Could now be a good time to consider buying shares in the retail conglomerate?

At the close of trade, Wesfarmers shares are down 0.7% at $45.24. They have fallen almost 25% since the beginning of the year and are closer than ever to the March lows seen in the COVID-19 crash of 2020.

Is the Wesfarmers share price a buying opportunity?

It’s an interesting question, considering interest rates are rising and inflation is building in Australia.

Ray Dalio, the billionaire founder of Bridgewater Associates, explains why interest rates are so important for asset values:

It all comes down to interest rates. As an investor, all you’re doing is putting up a lump sum payment for a future cash flow.

There has been plenty of the elevated inflation in different areas of the economy, such as energy, during 2022, particularly after the Russian invasion of Ukraine. So, the second half of FY22 will deliver the results for investors to keep an eye on.

How is the company coping with inflation?

Wesfarmers said in February 2022 that it was actively managing increasing inflationary pressure and would leverage its scale to mitigate the impact of rising costs. It also said the group’s retail businesses would “increase their focus on price leadership”.

However, the company did note that it was incurring additional costs and experiencing stock availability issues due to the global supply chain disruptions, elevated team member absenteeism and delays with third-party logistics providers.

In the first half of FY22, Wesfarmers reported that its underlying net profit after tax (NPAT) fell by 14.2% to $1.2 billion. I think it will be interesting to see how Wesfarmers has responded to inflation in the six months to June 2022.

Challenging times for Wesfarmers

Things are looking a bit tougher for Wesfarmers. Australian households may not have as much money to spend at the retail giant’s brands such as Bunnings, Officeworks, Kmart, Target and Catch.

Falling Australian house prices could also be a headwind for Bunnings’ earnings if people spend less on improving their houses and more on loan repayments instead.

But plenty of tailwinds…

I think that Wesfarmers is one of the best businesses on the ASX. It has proven to be effective at buying the right businesses and building them into strong brands for the long-term future. This includes the Mt Holland lithium project.

While earnings may drop in the shorter-term, the company is doing the right thing by building new growth avenues, in my opinion. The Australian Pharmaceutical Industries acquisition is the beginning of a health and beauty division for Wesfarmers, opening up another earnings stream for the company.

Bunnings is one of the leading retailers in the country, I believe. It earns strong profit for Wesfarmers and it has the ability to grow through expansion with other businesses such as its recent acquisition of  Beaumont Tiles.

I think that the Wesfarmers share price is also attractive because the business continues to pay attractive dividends to shareholders. That’s a useful way to boost total returns.

I believe that Wesfarmers is a long-term opportunity. The diversified nature of the business lowers the risk in times like this and opens up more potential opportunities, in my opinion.

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 has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on 52-Week Lows

man bending over to look at red arrow crashing down through the ground
52-Week Lows

Why is the Australian Strategic Materials share price sinking 10% today?

What's got Australian Strategic Materials shares in a tailspin?

Read more »

Gold

Why is the Newcrest share price slipping to a new 52-week low on Friday?

The gold miner and its peers are having a tough end to the trading week.

Read more »

An older man wearing glasses and a pink shirt sits back on his lounge with his hands behind his head and blowing air out of his cheeks.
Financial Shares

Pendal share price slumps 10% to multi-year low amid continued outflows

The Pendal share price has hit a new low today...

Read more »

A man sits wide-eyed at a desk with a laptop open and holds one hand to his forehead with an extremely worried look on his face as he reads news of the Bitcoin price falling today on his mobile phone
52-Week Lows

Here are 3 ASX 200 shares tumbling to new 52-week lows today

It's proving a day to forget for this trio of ASX 200 shares...

Read more »

a man with a moustache sits at his computer with his hands over his eyes making a gap between his fingers so he can peek through to his computer screen.
52-Week Lows

EML share price sinks 18% amid CEO’s unexplained departure

Shares in the payments company are having a shocker of a day.

Read more »

Kid with a brown paper bag on his head which has a sad face on it sits in front of an old style computer representing falling ASX 200 tech shares today.
52-Week Lows

These 3 ASX All Ordinaries shares are hitting new 52-week lows today

Here's why these All Ords stocks are suffering on Wednesday.

Read more »

a young man sits on the floor with his back against a sofa hunched over his phone in one hand and his other hand on top of his head as though he is seeing bad news as his face looks sad and anguised.
52-Week Lows

Down 18% in a week, what’s stolen the shine from the Regis Resources share price?

The gold miner's shares have lost their sparkle over the past week. Here's why.

Read more »

Three rock climbers hang precariously off a steep cliff face, each connected to the other with the higher person holding on and the two below them connected by their arms and rope but not making contact with the cliff face.
52-Week Lows

3 high-quality ASX 200 shares trading at 52-week lows right now

The recent sell-off may have created buying opportunities for these ASX 200 shares.

Read more »