Long-term owners of Wesfarmers Ltd (ASX: WES) shares may be sitting very happy, with the share price rising more than 110% in the last five years. However, after its strong run, is it still a good buy today?
The owner of Bunnings, Kmart, Officeworks and Target has experienced changes in customer behaviour over the last few years as households adjust to shifts their budget. In the chart below, we can see the Wesfarmers share price has jumped 16% in 2025 alone as investors absorb the latest performance of the business.
Following the strong run, I'm going to look over the potential positives and negatives of the business in May, at the current Wesfarmers share price valuation.
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Positives
It's clear to me, and I think many investors, that Bunnings and Kmart are two of the highest-quality retailers in Australia. This is driving Wesfarmers' strong profits.
Wesfarmers recently held a Bunnings investor day and UBS said in a note that Bunnings provided multiple drivers of future sales and earnings growth. That includes new categories and market share gains in existing categories, growing and optimising space, growth with commercial customers, online sales growth, retail media growth, and productivity, supported by technology.
UBS says these are capital-light drivers that can help Bunnings' return on capital (ROC) growth. The broker believes Bunnings' earnings can reaccelerate.
Turning to Kmart, I think it can continue to deliver solid earnings growth, supported by an improving product range and quality, growing international earnings with Anko and serving customer online sales with its distribution warehouses following the closure of Catch.
UBS also noted that technology investments and tools have reduced 'tasking' and improved the customer experience at a lower cost, such as electronic shelf labels being rolled out across specific categories. The supply chain is to be optimised with a consolidation of inbound suppler deliveries to lower transport and store costs.
The last positive I will note is Wesfarmers' ability to continue growing profit each year. It has impressed me by growing its earnings in the last five years through challenging conditions. UBS projects ir to grow its net profit from $2.7 billion in FY25 to $3.8 billion in FY29, which would represent an increase of 41%.
Negatives on Wesfarmers shares
There aren't many negatives to say about Wesfarmers, in my view, but I'll mention two.
Firstly, its earnings are largely reliant on retail customers in Australia and New Zealand. Therefore, profit is exposed to discretionary spending. However, I think the business has shown its ability to attract customers looking for value. Plus, it has a few non-retail divisions where it's trying to increase earnings including healthcare and chemicals, energy and fertilisers (WesCEF).
The other negative is that it isn't as cheap as it once was following its impressive rise, which I noted in the introduction of this article. According to the forecasts from UBS, Wesfarmers shares are trading at 35x FY25's estimated earnings. While I'd still be happy to invest for the long-term, it's a higher price/earnings (P/E) ratio than its historical earnings multiple. I think the business will need to continue improving profit margins and shareholder metrics.
