Wesfarmers Ltd (ASX: WES) shares have taken a hit alongside the broader market in the last week of trading.
After popping to new highs of $73.65 on July 31, the stock was heavily sold as the broader market came under selling pressure.
Before market open today, it was 6% down from this high.
However, as I write, investors are appearing more confident on Tuesday. They are driving the stock 1% higher to swap hands at $69.77 at the time of writing.
With this volatility, is now the time to buy Wesfarmers shares? Let's see what the experts think.
Wesfarmers shares show dominance
Wesfarmers, known for its diverse operations across retail, healthcare, and chemicals, has had a strong year. The share is up nearly 23% since January.
The company's portfolio includes well-known brands such as Bunnings, Kmart, and Priceline Pharmacy, to name a few.
Bunnings and Kmart have performed particularly well, with Bunnings' sales rising by 1.7% and Kmart Group's sales increasing by 5% in the first half of FY24.
Despite thin profit margins, their high sales volumes and excellent returns on capital from these divisions stand out.
This growth enabled Bunnings to capture market share and achieve a 66% return on invested capital (ROIC), while Kmart realised an ROIC of 58.8%.
They are the 'low-cost providers' of many categories. In the event of an economic downturn, this competitive advantage will increase in my view.
Wesfarmers shares also pay a respective dividend. The company recently increased its dividend by 3.4% to 91 cents per share, with further growth expected down the line.
Valuation considerations
Currently, Wesfarmers is trading at a price-to-earnings (P/E) ratio of 32 times. This is higher than the general market, which trades at a P/E of around 19 times at the time of writing.
While this might seem expensive, the high valuation is partly due to expectations of the company's performance and growth potential.
Wesfarmers is investing in new growth areas, such as lithium mining and healthcare, which could offer additional revenue streams in the future. Investor expectations are very high on these projects, based on the current P/E.
Despite this, broker opinions are mixed. Goldman Sachs has a hold rating on Wesfarmers shares, valuing them at $68 each.
Meanwhile, UBS is bullish and forecasts that Wesfarmers could generate earnings of $2.56 billion in FY24. It then projects earnings growth of 19% per year until FY26.
Moreover, the consensus of analyst estimates rates it a hold, according to CommSec.
Foolish takeaway
Wesfarmers shares are currently trading at a premium despite their recent decline. Alas, brokers are mixed on the company right now.
In my view, it's important to look beyond the market's day-to-day changes and even the year-to-year changes. No one knows where the market will be in a year's time.
The most important factor is having a long-term view. Given its portfolio of companies, Wesfarmers appears well-positioned for the future. Only time will tell.
Whether Wesfarmers shares are in the buy zone for your investment portfolio depends on your risk tolerance and financial goals. Always conduct your own due diligence and consider seeking advice from a financial professional.
