Here's why I'm still holding out for a Wesfarmers share price dip

2024 was a great year for the S&P/ASX 200 Index (ASX: XJO) and a fantastic one for the Wesfarmers Ltd (ASX: WES) share price.

Last year saw the ASX 200 Index rise by a solid 7.5%, which, with the addition of dividend returns, put it well above the average annual performance of the Australian share market.

A phenomenal two years for this ASX 200 blue-chip

However, the Wesfarmers share price left the broader market in the dust. The ASA 200 industrial and retail conglomerate started 2024 with a share price of $57.04. But by the time December wrapped up, those same shares were going for $71.53. That's a gain worth 25.4%.

When you factor in the two dividends that Wesfarmers also forked out last year, that return stretches to almost 29%.

What's more, this game comes off what was also a great year for Wesfarmers in 2023, which saw the company rise by another 24.2%. This, again, was well ahead of what the broader market brought in. See for yourself below:

Now, I've owned Wesfarmers shares for a number of years now, and have thus benefitted from these gains.

I love Wesfarmers as a company. Its incredibly broad portfolio of underlying businesses is attractive to me, particularly its stewardship of some of the best retailers in the country – OfficeWorks, Kmart and, of course, Bunnings.

Additionally, I view Wesfarmers' management team as highly competent, thanks to its long track record of astute capital management and prioritisation of shareholder returns.

Wesfarmers share price: Too expensive to buy?

As I documented last week, Wesfarmers is one of the ASX shares that I am most excited to buy in 2025. However, I probably won't be buying more shares at anywhere near the current Wesfarmers share price.

After those back-to-back years of outsized share price gains, Wesfarmers sits on a price-to-earnings (P/E) ratio of 31.64 today. That's well above the ASX 200 average.

Given Wesfarmers' unique nature as a sprawling conglomerate, as well as its track record of high returns, this company arguably deserves to trade on a premium. However, this stock is also a very mature company and isn't exactly growing at a breakneck pace.

To illustrate, for the 2024 financial year, Wesfarmers reported revenue growth of just 1.5% to $44.2 billion. Net profits and earnings per share (EPS) were a little better, rising by 3.7% and 3.6%, respectively, to $2.56 billion and 225.7 cents per share.

However, these metrics aren't really enough to justify the current P/E ratio in my mind. It doesn't exactly scream bargain when you consider that Google-parent Alphabet and Instagram-owner Meta Platforms, companies that clearly have longer growth runways than Wesfarmers, currently trade on lower P/E ratios than Wesfarmers.

So, in all likelihood, I'll wait for Wesfarmers to fall to a lower earnings multiple before I add to my existing position. It just doesn't make sense to buy this high-calibre company at the current valuation. Hopefully, I'll get a shot at buying Wesfarmers shares for a cheaper price this year.

The post Here's why I'm still holding out for a Wesfarmers share price dip appeared first on The Motley Fool Australia.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Sebastian Bowen has positions in Alphabet and Meta Platforms. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Meta Platforms, and Wesfarmers. The Motley Fool Australia has recommended Alphabet, Meta Platforms, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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