I have owned Wesfarmers Ltd (ASX: WES) shares for many years now. I love the company, and its shares are a proud pillar of my personal ASX share portfolio.
The Wesfarmers shares that I purchased years ago have done very well for me, delivering both healthy capital growth and a treasured source of passive dividend income.
Wesfarmers brings many benefits to my portfolio. For one, it is an inherently diversified business. Most investors know Wesfarmers for its retail crown jewels – Kmart, OfficeWorks, Target, and last but not least, Bunnings. But Wesfarmers is much more than these four names. It also owns the Priceline pharmacy chain, chemicals and fertiliser manufacturing businesses, industrial safety operations, and many more facets.
For another, those crown jewel retailers are some of the most successful businesses in the country. Most of us are familiar with the Bunnings success story. But Wesfarmers has also managed Kmart, OfficeWorks and Target with aplomb. Kmart's success with its Anko brand is a notable achievement for Wesfarmers in recent years.
Wesfarmers has proven itself to be an astute manager of capital over many decades. It has delivered for shareholders, in both the growth and income arenas.
Yet, I haven't added to my Wesfarmers position for a very long time. I have no plans on doing so.
Why?
Well, it all comes down to price and value. As Warren Buffett once famously said, "price is what you pay, value is what you get".
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Wesfarmers shares: Price and value
At the current Wesfarmers share price, I simply don't see much value.
At the present price of $82.22, you are buying a company worth about $93.3 billion, trading on an earnings multiple of 30.45.
For this, you are getting a company that generated $45.7 billion in revenue over FY2025 and an underlying net profit after tax of $2.65 billion. That latter metric represented a 3.8% rise over what Wesfarmers rang up over FY2024.
This all looks pretty expensive. To illustrate, companies that are growing at far faster rates than Wesfarmers are currently trading at far lower prices. Google-owner Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Facebook-owner Meta Platforms Inc (NASDAQ: META) grew profits by a lot more than 3.8% over their most recent financial years. And both currently ask well under an earnings multiple of 30.45. As of recent pricing, Alphabet is at 27.8, while Meta is at 21.2.
Of course, that is not an overly useful comparison, as Wesfarmers is a metaphorical apple and US tech titans are oranges. But, to labour the point, I think this shows just how pricey Wesfarmers shares are at their current ask.
One only has to look at CSL Ltd (ASX: CSL) and Commonwealth Bank of Australia (ASX: CBA) shares to see what happens when valuations get stretched. This is another apples-to-oranges comparison, but again, I think it is an apt point to highlight.
So, long story short, I won't be buying any more Wesfarmers shares at the current valuation. I would love to increase my exposure to this stellar ASX blue-chip stock. But at the current price we are being asked to pay, I don't see much value we might get.
