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Let's talk about the popular Wesfarmers Limited (ASX:WES). The company's shares saw a decent share price growth of 12% on the ASX over the last few months. The recent jump in the share price has meant that the company is trading around its 52-week high. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today we will analyse the most recent data on Wesfarmers’s outlook and valuation to see if the opportunity still exists.
Check out our latest analysis for Wesfarmers
Is Wesfarmers Still Cheap?
Wesfarmers is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Wesfarmers’s ratio of 33.11x is above its peer average of 23.38x, which suggests the stock is trading at a higher price compared to the Multiline Retail industry. Another thing to keep in mind is that Wesfarmers’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards the levels of its industry peers over time, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard for it to fall back down into an attractive buying range again.
Can we expect growth from Wesfarmers?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Wesfarmers' earnings over the next few years are expected to increase by 28%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in WES’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe WES should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.