The Wesfarmers Ltd (ASX: WES) share price has soared 23% from 7 April 2025, as the chart below shows. After such a strong run, it's definitely worth questioning whether the business is still an attractive investment opportunity.
For investors that don't know, this is the business that owns some of the strongest retailers in the country, including Bunnings, Kmart, Officeworks, Priceline and Target.
I believe Wesfarmers is one of the most compelling ASX blue-chip shares that Aussies could own, so I'll start with the positives about this great business.
Why the Wesfarmers share price is still attractive
I'd say that Bunnings, Kmart and Officeworks are category leaders in their respective retail sectors, which I think is why they're able to achieve strong margins/returns for shareholders considering what they do.
In the FY25 first-half result, Wesfarmers reported that Bunnings achieved a return on capital (ROC) of 71.5%, Kmart Group delivered a ROC of 65.9% and Officeworks reported a ROC of 18.3%.
When businesses are producing returns as strong as that, it's not only a sign of great quality, but it also means the business could re-invest generated profits back at a very high rate of return.
I'm particularly excited by the company's potential to grow its Anko product brands. Wesfarmers is distributing Anko products into new markets globally, including Anko stores in the Philippines. Furniture and home products are being sold in Canada, while wooden toys are being sold in the US.
Wesfarmers is also providing reliable income for investors, which I think is appealing for income-seekers. It has grown its dividend each year since the onset of the COVID-19 pandemic in 2020, though that was also the first full financial year following the demerger of Coles Group Ltd (ASX: COL).
Another positive I like about the business is its willingness to invest in new sectors, which unlocks new ways to generate earnings and helps future-proof the business. Healthcare and lithium mining are two of its most recent expansion efforts. In ten years, it wouldn't surprise me if the Wesfarmers business looked quite different.
Reasons to be cautious about the ASX retail share
Wesfarmers is by far one of the best ASX blue-chip shares, in my opinion. However, its valuation is now a lot higher than it used to be. The market is recognising the quality of what it sees in the business.
I'm not just saying the Wesfarmers share price has risen, but the price/earnings (P/E) ratio has increased too. In other words, the earnings multiple it's trading at has increased.
According to the forecast on Commsec, Wesfarmers is projected to generate $2.33 of earnings per share (EPS). This means the current Wesfarmers share price is valued at 36x FY25's estimated earnings. In FY21, when interest rates were virtually zero, the Wesfarmers share price traded at an average annual P/E ratio of 23, according to Commsec.
I think Wesfarmers' is higher quality now than it was four years ago, particularly with the performance of Kmart Group and Anko. But, this higher valuation makes strong short-term returns a bit less likely.
But, due to the quality of the business, I'm still optimistic about its ability to produce strong long-term returns.
