WES share price in focus
Founded in 1914, Wesfarmers is an Australian conglomerate headquartered in Perth. Its main operations span Australia and New Zealand and include retail, chemical, fertiliser, industrial and safety brands and products.
Wesfarmers is a bit like a publicly listed private equity company. It has a long history of buying businesses, benefitting from their cash flow, re-investing in them and then selling them for a more attractive price. A good example of this might be Coles Group, which it bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. Wesfarmers originally invested in Bunnings in 1987, buying the final 52% in 1994 for $594 million.
Wesfarmers has long been considered a leading blue chip stock on the ASX and is known for paying a consistent dividend. Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy.
Since we consider Wesfarmers Ltd to be a blue chip stock, or a mature business, we like to look at things like return on invested capital (ROIC) and revenue growth as signs of sustainability. In FY23, Wesfarmers Ltd had an ROIC of 19.00% and revenue has compounded at 12.2% in recent years. Anything over 10% ROIC is pretty strong for a mature-style business, since its cost of capital is likely below that level, so Wesfarmers Ltd crosses this hurdle.
RMD shares
ResMed was founded in 1989 by Peter Farrell in Australia but is now based in San Diego, California. It is a medical equipment company that provides cloud-connectable continuous positive airway pressure, or CPAP, machines for the treatment of obstructive sleep apnea (OSA). Because of its US home base, ResMed shares have their primary listing on the NYSE but are also listed on the ASX.
ResMed operates on a global scale, with 10,000+ employees and a presence in over 140 countries. It has two primary business units: Sleep and Respiratory Care, and Software as a Service (SaaS). Within Sleep and Respiratory Care, ResMed provides industry-leading CPAP machines for sleep apnea. The Respiratory Care unit covers patients ranging from those who only require therapy from CPAP systems at night to those who are dependent on non-invasive or invasive ventilation for life-support. Within the SaaS unit ResMed provides software that assists durable or home medical equipment (DME/HME). Basically, it assists in out-of-hospital care.
Due to ResMed’s large digital health network powered by its cloud-connected devices, ResMed can leverage its industry-leading hardware (e.g. masks and humidifiers) and its SaaS data to drive insights, improve outcomes and reduce overall healthcare costs.
Share price valuation
One way to have a ‘speedy read’ of where the WES share price is, is to study something like dividend yield through time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can fluctuate year-to-year or between payments. Currently, Wesfarmers Ltd shares have a dividend yield of around 2.56%, which compares to its 5-year average of 3.24%. Put simply, WES shares are trading below their historical average dividend yield.
The RMD share price currently trades at a price-sales ratio of 5.28x, which compares to its 5-year long-term average of 7.81x. So, RMD shares are trading below their historical average. However, a simple multiple like this should only be the start of your research. Our websites explain Discounted Cash Flow (DCF), Dividend Discount Models (DDM), and many different ways to value a share, like Resmed CDI.
