The Wesfarmers Ltd (ASX:WES) share price has fallen in 2022. I think that’s one factor of why it’s a buy.
Wesfarmers is one of the best ASX 200 (ASX: XJO) shares in my opinion.
It has a number of high-quality businesses under its control like Bunnings, Officeworks and Kmart.
But, after the difficulties seen during 2022, I think that this is a good time to pounce on the company at the current Wesfarmers share price.
Better valuation
One of the easiest and most useful ways to look at a business, in my view, is with the price/earnings ratio (p/e ratio). That tells us what multiple of earnings the share price is valued at. A lower or higher p/e doesn’t automatically mean that company X is better than company Y, but it can be useful to compare.
It’s particularly useful to be able to look at a business and judge that against its own growth prospects and historical p/e ratio valuation – is it cheaper than normal?
With the Wesfarmers share price falling 20% in 2022, its p/e ratio for FY23’s earnings is 23 if we use the profit estimate on Commsec.
I think that’s reasonable considering the next two points.
Multiple growth avenues
One of the main attractions for me about Wesfarmers is that it can grow in multiple ways.
For starters, it’s not stuck being a bank, supermarket or telco company. The business model allows Wesfarmers to operate and invest in a range of different industries. For example, it recently bought the business that owns Priceline and Clear Skincare Clinics, opening up a healthcare division in the company. Healthcare has attractive long-term ageing demographics and potential digital trends.
It’s also invested in a lithium mine project. Lithium prices have gone through the roof. This will help earnings and hopefully the Wesfamers share price in a few years when the project is complete.
Bunnings has good long-term growth potential as it diversifies into other businesses (eg tools and tiles).
It could acquire other businesses during this period of lower asset prices with its healthy balance sheet.
Online retail is also a compelling long-term growth area for Wesfarmers. It will have to compete strongly with names like Amazon and Kogan.com Ltd (ASX: KGN) in the future though.
Good dividend
Dividends shouldn’t be the key focus with a business like Wesfarmers. But, the dividend can form an important part of the returns each year.
Whether the Wesfarmers share price goes up or down, investors can get the real return of a nice cash dividend payout.