Would I still buy Wesfarmers shares as they hit all-time highs?

Is Wesfarmers stock still a good buy at the current level?

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The Wesfarmers Ltd (ASX: WES) share price reached another all-time high today of $71.08, marking an impressive rise of more than 20% since the start of 2024. As we can see on the chart below, the last six months has been a period of strong growth for shareholders.

The owner of Bunnings, Kmart and Officeworks is benefiting from the overall economy remaining stronger than feared. Some households are doing it tough, so this is where the value on offer from the Kmart and Bunnings products can shine through.

However, no ASX share is a buy at any price, so investors should be cautious about paying at an increasingly high price.

Time to be cautious?

As the share price rises, it pushes up the price/earnings (P/E) ratio, making it seem more expensive (if the earnings projections aren't also increasing).

If we look at the projections on Commsec, Wesfarmers is projected to see profit growth in each of the next three annual results. It's predicted to grow earnings per share (EPS) to $2.26 in FY24, $2.44 in FY25 and $2.71 in FY26.

This would put the Wesfarmers share price at 31x FY24's estimated earnings and 29x FY25's estimated earnings. This is fairly elevated considering Wesfarmers is only projected to grow its EPS by 8% in FY25 and 11% in FY26. Ideally, an attractive investment will see the P/E ratio and earnings growth at a fairly similar number.

This comes at a time when the Reserve Bank of Australia (RBA) is expecting inflation (and the interest rate) to remain elevated for a while yet. We may not have seen the last of the volatility of the stock market this year.

Is the Wesfarmers share price still a buy?

I'd be less excited to buy Wesfarmers shares today than in December or January 2024.

However, it's important to keep in mind that this business has been generally growing for decades. And what happens in 2024 is unlikely, in my mind, to disrupt the company's long-term earnings trajectory.

Wesfarmers' Kmart and Bunnings businesses have plenty of potential to keep growing, particularly if the Australian population keeps increasing at a good pace. More people means more potential customers and more houses required (which need construction materials).

The business is growing into other sectors such as lithium and healthcare. I think healthcare is very promising for the company – not only is it a huge market, with multiple areas of growth (eg digital healthcare, and the wellness category), but Wesfarmers can bring some of its expertise and scale to its subsidiaries in the healthcare space, such as Priceline.

While I wouldn't call it cheap, this is the sort of quality business that could keep growing profit for a long time to come.

I'd be happy enough to start a position today and then buy more if the Wesfarmers share price falls or if the earnings can grow to reduce the P/E ratio.

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 positions in and has recommended Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. 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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