Owning Wesfarmers Ltd (ASX: WES) stock means owning a number of impressive businesses including Bunnings, Kmart, Officeworks, Priceline, Instantscripts, and plenty more.
The company has a number of lesser-known businesses too, such as chemicals, energy and fertilisers, as well as an industrial and safety division.
Wesfarmers has proven to be a great long-term investment. Its performance over the last five years has been excellent, as the chart below shows.
I think the Wesfarmers stock is capable of continuing to rise over time, and there are a few things we need to keep in mind.
Image source: Getty Images
Strong return statistics
It's clear that the two businesses driving Wesfarmers higher are Bunnings and Kmart. The market shares they have achieved and the prices they provide for customers are impressive.
But I'd suggest there are a few more important statistics that demonstrate how successful Bunnings, Kmart, and Wesfarmers are overall.
For the individual businesses, the return on capital (ROC) measure for its main sources of profit are very impressive. It shows that money used within Bunnings and Kmart is being put to very good use.
In FY25, Wesfarmers reported that Bunnings Group (including Tool Kit Depot and Beaumont Tiles) achieved a ROC of 71.5%, up from 69.2% in FY24. That's incredibly high and improved significantly, which suggests to me there could be further improvement if there are no negative surprises in FY26.
Meanwhile, Kmart Group (which includes Target and Anko) saw its ROC increase to 67.6% in FY25, up from 65.7% in FY24. Again, the size of that increase suggests that there could be further improvement in FY26.
Owners of Wesfarmers stock can also be very happy with the company's overall return on equity (ROE), which was 31.2% excluding significant items. To me, that says the business is generating excellent returns on money it retains within the business, and it should continue investing in itself if it's able to generate those sorts of returns.
Investing for the future
The company continues to find good uses to put its money to work within Wesfarmers. It is not done growing yet, and I like its prospects.
For example, with Bunnings, it has offered more localised ranges to improve the in-store relevance for customers. During the year, Bunnings enhanced its in-store technology, as well as a new demand and replenishment system. It also invested in new and expanded ranges (such as auto care and pets). The new tool shop format was rolled out to 175 stores, with a wider range of brands and products. During the year, it also launched Hammer Media, giving advertisers and suppliers the ability to market to customers, including 300 in-store screens, in-store radio, and various digital channels.
Kmart Group was also busy during FY25. It integrated Kmart and Target's systems, as well as the ongoing digitisation of operations across stores, sourcing, and the supply chain. The company also said it rolled out its new 'Plan C plus' format to five stores, with positive early trading results. Pleasingly, Anko's expansion into new markets "progressed well" with two Anko stores opened in the Philippines and new partnerships secured with major global retailers for the distribution of Anko products.
If Anko can continue growing internationally, that could become a very useful growth avenue for Wesfarmers stock.
Higher price-earnings ratio
While the above elements are very positive for the company, investors should also be aware that the company's price-earnings (P/E) ratio is now higher than it has been in recent history.
According to UBS' forecast, the business is projected to generate earnings per share (EPS) of $2.50 in FY26.
That means, at the time of writing, the Wesfarmers stock price is trading at more than 36x FY26's estimated earnings. UBS expects the company to grow its EPS by 50% between FY26 to FY30, so I'd say there is justification for this higher P/E ratio.
