The Wesfarmers Ltd (ASX: WES) share price dip in recent times could be the right chance to jump on the stock.
Wesfarmers is not exactly one of the most well-known companies in Australia, but it owns a number of businesses that are known by Aussies, such as Kmart, Bunnings, Target, Officeworks, Priceline, InstantScripts and other businesses.
After falling 11% from 17 February 2025, I think the business is well-positioned to deliver good returns, despite the business trading at a higher earnings multiple than it used to a few years ago. I believe it’s attractive for three key reasons.
Higher-quality profit
The two key profit generators of overall profit for Wesfarmers are Bunnings and Kmart. Both companies have proven their ability to offer customers value products during the high cost of living, enabling them to gain market share.
Being able to grow market share in all market conditions is a strong characteristic.
What I’m particularly pleased to see is those businesses making stronger profits for how much money Wesfarmers has invested in those businesses.
For example, in the HY25 result, Bunnings’ return on capital (ROC) improved 5.7% to 71.5% and Kmart Group’s ROC grew 7.1% to 65.9%. I think this is a major reason why Wesfarmers shares are worth more than they were before.
Improving online offering
Wesfarmers is slowly but steadily growing its online sales to customers over the years , with key businesses like Bunnings and Kmart.
The business recently took the difficult decision to close online retailer Catch so that its warehouses could be utilised by Kmart Group to fulfil online orders. This is a smart move, in my opinion, as more of the company’s sales is likely to be digital as times goes on and will lead to higher utilisation of those facilities.
Wesfarmers has the scale to provide a great online channel and outperform most of its Australian rivals. Amazon is a key competitor which may not be as easy to defeat online, but there’s plenty of room for them both to succeed.
Ongoing business diversification
Wesfarmers is very willing to change the group of businesses inside its stable. It used to own Coles, coal mining and the Kmart Tyre and Auto Service – it has divested them all.
The fact it’s willing to invest in new sectors like lithium and healthcare makes me think it can continue to direct its capital towards industries with pleasing growth potential.
The more it can earn from different places other than the ‘Australian consumer’, the better off I think shareholders will be in the long run.
Overall, I think Wesfarmers shares have a promising future and I’m willing to this price because of the business progress I’m seeing.
