Is the Wesfarmers Ltd (ASX: WES) share price a buy after falling almost 25% because of the impacts of the coronavirus?
Wesfarmers operates a number of businesses including Bunnings, Officeworks, Kmart, Target, Catch, an industrial division and lithium. It also maintains stakes in some businesses like BWP Trust (ASX: BWP) and Coles Group Limited (ASX: COL). In hindsight, the acquisition of Catch was very useful to increase its eCommerce capabilities for this period.
It shouldn't be surprising that Wesfarmers has fallen because foot traffic at various shopping centres and stores has declined. Australians are being told to stay in their homes unless it's essential for them to go somewhere.
I thought it was a smart move to decide to divest another 5.2% of Coles because the supermarket business is going so well. Sales are going through the roof and the share price is holding up well.
What's Wesfarmers going to do with the money?
Well, I'd be looking at a number of businesses and industries that are now valued much cheaper. The best time to buy businesses is when there's fear in the economy. Wesfarmers has added around $1 billion to its balance sheet from the Coles sale with which it could acquire something(s).
If it were up to me I'd be looking to online businesses with good growth potential and growing profit margins like Kogan.com Ltd (ASX: KGN) and Webjet Limited (ASX: WEB). Or perhaps a small business with big global aspirations like Bubs Australia Ltd (ASX: BUB) which may do even better under the wing of Wesfarmers rather than face investors scrutiny every six months.
Is Wesfarmers a buy?
Wesfarmers is currently trading at 20x FY22's estimated earnings. That's how far I think we need to look ahead for a normal year. With how low interest rates are, Wesfarmers could be a decent buy today – particularly for income. But I expect FY20 and FY21 will be disrupted, so there could be better picks out there.
