The Wesfarmers Ltd (ASX: WES) share price has taken a dive in recent weeks. It has declined around 20%, as the chart below shows.
I'm not sure if Warren Buffett has heard of Wesfarmers, but I'm sure most Aussies have heard of some of its main profit generators including Bunnings, Kmart, Officeworks and Priceline.
Wesfarmers owns other businesses such as Target, healthcare businesses (such as InstantScripts) and WesCEF (chemicals, energy and fertiliser), which includes lithium mining.
Warren Buffett hasn't told me whether he'd invest in Wesfarmers shares or not. But, I think there are a few aspects that make me believe it could be attractive to the legendary investor from Omaha.
Image source: The Motley Fool
Good return on equity
There are a variety of ways to judge the quality of a business, such as how fast its earnings are growing, the strength of its competitive advantages (economic moat) and how high its return on equity (ROE) is.
For me, the ROE is a very powerful profitability metric because it tells investors how much profit a business is making compared to how much shareholder money is retained within the business.
I think Warren Buffett would want to see that the business makes a good ROE, and it could continue improving even further into the future.
Wesfarmers reported that for the first six months of FY26, its ROE (excluding significant items) improved 150 basis points (1.50%) to 32.7%.
Wonderful company
I'd view the business as one of the highest-quality businesses on the ASX because of the great market position and brand recognition of Bunnings and Kmart.
I think these businesses are likely to keep increasing profits as they grow their store networks, expand their product ranges, increase online sales and benefit from improving scale benefits.
As an example of how wonderful these businesses are, in HY26 Bunnings Group achieved a return on capital (ROC) of 70.8% and Kmart Group delivered a ROC of 69.8%.
As Warren Buffett once said, he'd rather buy a wonderful company at a fair price than a fair company at a wonderful price.
According to the forecast on CMC Invest, the business is trading at 29x FY26's estimated earnings, at the time of writing. I'd call that a fair price for a wonderful company.
Compounding profit growth
One of the main reasons why I'd be happy to invest today – aside from the recent decline of the Wesfarmers share price – is the fact the company has a track record of delivering underlying profit growth most years.
Analysts are expecting net profit to continue growing in the next few years, which I think would be appealing to Warren Buffett.
According to the projection on CMC Invest, Wesfarmers is expected to see its earnings per share (EPS) climb to $2.52 in 2026, $2.80 in 2027 and $3.00 in FY28.
If Wesfarmers can grow its earnings by approximately 19% between FY26 and FY28, then this could be a very useful tailwind for the Wesfarmers share price in the longer-term.
