The Netwealth Group Ltd (ASX:NWL) share price has risen 76.3% since the start of 2024. Also in 2024, the Wesfarmers Ltd (ASX:WES) share price is 11.9% away from its 52-week high. This article explains why it could be worth popping NWL and WES shares on your watchlist.
NWL share price in focus
Founded in 1999, Netwealth is a wealth management business that provides a platform for financial planners to manage client money.
As of 2024, Netwealth has over 140,000 account holders on its platform and over $88 billion of funds under administration (FUA).
Netwealth’s big advantage is its scale and the user-friendly interface which can be accessed through its online platform. Through one simple dashboard, users can buy and sell investments, track performance, and view charts, reports and tax statements.
While it may be large, Netwealth Group Ltd is a growth stock, and so it requires a different set of rules and may not be straightforward to value at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Netwealth Group Ltd is able to grow revenue at 20.8%, a strong clip.
WES shares
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.
NWL share price valuation
As a growth company, some of the trends we would be looking for from NWL include revenue growth, profit growth, and return on equity (ROE). Since 2021, NWL has grown revenue at a rate of 20.8% per year to reach $255m in FY24. Over the same time period, net profit has increased from $54m to $83m. NWL last reported a ROE of 62.3%.
Since WES is more of a ‘mature’ or ‘blue-chip’ business, some of the metrics that might be important to us include the debt/equity ratio, average yield, and return on equity, or ROE. In FY24, Wesfarmers Ltd reported a debt/equity ratio of 131.4%, meaning the company is leveraged (it has more debt than equity). This can increase risk so it’s important that a leveraged company has stable returns and the capacity to pay interest on its debts.
As for dividends, since 2019 WES has achieved an average dividend yield of 3.4% per year.
Finally, in FY24, WES reported an ROE of 30.3%. For a mature business you generally want to see an ROE of more than 10%, so WES clears this hurdle.
It’s important to keep in mind that these are only a selection of metrics and don’t give us enough information to value the business or make an investment decision. To learn more about valuation, I’d recommend checking out one of our free online investing courses.
