The Wesfarmers Ltd (ASX: WES) share price has done very well, rising by roughly 30% in the past year. Not many S&P/ASX 200 Index (ASX: XJO) shares have managed that level of strength.
It's clear that the Wesfarmers share price is a lot higher. Now, without a crystal ball, I don't know if — or when — stock in the ASX retail conglomerate will ever fall back to its former levels.
And what happens next?
Is the Wesfarmers share price done rising? Or will it ride higher again?
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Why I'm confident Wesfarmers' share price and profit can keep rising
In the long run, rising profit will typically boost a company's share price.
And there are a number of drivers that can help Wesfarmers keep growing profit.
For starters, the Australian population continues to grow each year, which increases the potential number of customers at stores like Bunnings, Kmart and Officeworks.
Next, the company has a healthy dividend payout ratio, which is the percentage of profit that is paid as a dividend.
In the FY24 first-half result, Wesfarmers reported a dividend payout ratio of 72%. That means it kept more than a quarter of its profit to re-invest in more growth initiatives – it would be appealing if it could continue achieving a return on equity (ROE) of more than 30% (it was 31.4% in HY24) on the additional profit that's re-invested.
Acquisitions can also boost the company's profit in the future. For example, it recently acquired Instantscripts and Silk Laser Australia to help boost the scale and diversity of its growing healthcare division.
Finally, I think Bunnings and Kmart are two of the best retailers in the country. In this high cost-of-living environment, I think they're both capable of winning market share, even if retail sales across Australia are challenged.
Valuation
According to the estimate on Commsec, the Wesfarmers share price is valued at 25x FY26's estimated earnings. I think that's a reasonable value for a long-term investment in this great business.
