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2 ASX shares worth watching: WES and MIN

The Wesfarmers Ltd (ASX:WES) share price is up 16.2% since the start of 2024. It's probably worth asking, 'is the WES share price good value?'

The Wesfarmers Ltd (ASX:WES) share price is up 16.2% since the start of 2024. Meanwhile, the Mineral Resources Ltd (ASX:MIN) share price is 54.0% away from its 52-week high.

WES share price in focus

Wesfarmers is a diversified Australian conglomerate headquartered in Perth. It’s essentially a listed investment company with outright ownership or significant stakes in companies across retail, chemical, fertiliser, industrial and safety brands and products.

Wesfarmers has a long history of buying businesses, re-investing in them to grow cash flow and assets, then selling them off for a higher price. A good example of this is 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 Warehouse, the #1 hardware and home improvement business in Australia (and the country’s most trusted brand in 2023 & 2024). Wesfarmers originally bought into Bunnings in 1987, buying the final 52% in 1994 for $594 million.

Other household names owned by Wesfarmers include Blackwoods, Kmart, Target, Officeworks, and Priceline Pharmacy. Wesfarmers has been a leading blue chip stock on the ASX for decades and is known for paying a consistent dividend.

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 FY24, Wesfarmers Ltd had an ROIC of 19.40% and revenue has compounded at 9.2% in recent years. Anything over 10% ROIC is pretty good for a mature-style business, since its cost of capital is likely below that level, so Wesfarmers Ltd crosses this hurdle.

MIN shares

Mineral Resources Limited is a diversified Australian mining company focused on lithium and iron ore extraction across Western Australia.

MIN also provides mining and engineering services for external clients through its wholly-owned subsidiary, CSI Mining Services (CSI). Through CSI, Mineral Resources can provide capital infrastructure and operational expertise to clients across WA, Queensland, and the Northern Territory.

MIN aims to set itself apart from its competitors by maintaining in-house engineering and construction capability that grants full control and flexibility during product development.

WES share price valuation

We would consider WES to be a ‘mature’ or ‘blue-chip’ business, so some of the metrics that could be worth considering include the debt/equity ratio, average yield, and return on equity, or ROE. These measures give us a sense of the company’s debt levels, their ability to generate returns from their assets, and their ability to consistently return profits to shareholders.

For 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 is generating stable returns and has sufficient cash flow to pay interest on its debts.

Over the last 5 years, WES has delivered an average dividend yield of 3.4% per year. This is important to note if you’re looking for income from your investments.

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.

In FY24, Mineral Resources Ltd reported a debt/equity ratio of 148.9%, meaning the company is leveraged.

As for dividends, since 2019 MIN has achieved an average dividend yield of 2.4% per year, and in FY24 reported an ROE of 3.2%

It’s important to keep in mind that these are only a small selection of metrics and don’t give us enough information to value the business or make an investment decision. To learn more about valuation, check out one of our free online investing courses.

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