By all accounts, August was a blowout month for Australian investors and the stock market. Over the month just gone, the S&P/ASX 200 Index (ASX: XJO) rose by a healthy 2.6%, an uncommonly good month for the markets. Capped off, of course, by the ASX 200 hitting several new all-time record highs and crossing 9,000 points for the first time ever. But let's talk about the Wesfarmers Ltd (ASX: WES) share price.
Wesfarmers shares also had a great month in August. But the ASX 200 industrial and retail conglomerate took things to the next level comapred to the performance of the broader market.
The Wesfarmers share price started out August at $85.75. But by the time the markets closed up shop last week, those same shares were going for $91.81 each. That works out to be a gain worth a whopping 7.07%.
Not only that, but Wesfarmers also explored some untested heights last month. The conglomerate got as high as $95.18 a share, which was 11% above where it started the month at the time.
It was the company's full-year earnings report, delivered on 28 August, that took some of the wind out of the sails of the Wesfarmers share price.
As we covered at the time, this report saw Wesfarmers reveal that its revenues increased by 3.4% over the financial year to $45.7 billion. Underlying earnings before interest and tax (EBIT) ticked up 4.9% to $4.19 billion, while underlying net profit after tax (NPAT) rose 3.8% to $2.65 billion.
This enabled Wesfarmers to boost its 2025 final dividend by 3.7% to $1.11 per share, fully franked.
But let's talk about valuation.
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Are Wesfarmers shares still a buy after a record August?
I'm a big fan of Wesfarmers and count the company as one of my core ASX shares within my portfolio. Wesfarmers has proven itself to be a prudent and effective capital manager over many decades and offers unrivalled ASX diversification with its wide range of underlying businesses.
However, I do still have concerns regarding its current valuation. As its FY2025 numbers show, Wesfarmers is a large and mature company that, while still expanding at a healthy pace, certainly doesn't offer a steep growth runway going forward.
It seems the market disagrees, though. Despite its recent pullback, the Wesfarmers share price still trades on a price-to-earnings (P/E) ratio of over 35 today. Conversely, its dividend yield is relatively low at just 2.27% at the time of writing.
An earnings multiple that high implies Wesfarmers has double-digit earnings growth potential, stretching out for as far as the eye can see. To put that in perspective, companies that are growing at far higher rates, like US stocks Visa, Alphabet, Meta Platforms, and even Amazon, currently trade on P/E ratios lower than that of Wesfarmers right now.
I don't agree with that sentiment. At the current valuation, I regard the Wesfarmers share price as overvalued, and vastly so. As such, I wouldn't be picking up any more shares at anything close to a $90 price tag.
