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WES and Rea Group Ltd: 2 ASX shares to dig into

The Wesfarmers Ltd (ASX:WES) share price is up 42.6% since the start of the 2024. It's probably worth asking, 'is the WES share price good value?'
The Wesfarmers Ltd (ASX:WES) share price is up 42.6% since the start of the 2024. The Rea Group Ltd (ASX:REA) share price is tracking 9% off its 52-week lows.

WES share price

Founded in 1914, Wesfarmers is an Australian conglomerate headquartered in Perth. It mainly has operations across Australia and New Zealand, operating in retail, chemical, fertiliser, industrial and safety products.

It’s easy to think of Wesfarmers like a publicly listed private equity company. It has a long history of buying businesses, benefitting from their cash flows, re-investing in them and then selling them for a more attractive price. A good example of this might be Coles Group, which is bought in 2007 and spun out in 2018. However, by far (over 50%) of the company’s operating profit comes from Bunnings, the #1 hardware and home improvement business in Australia. It bought the remaining 52% of Bunnings that it didn’t own in 1994 for $594 million. Other brands include Kmart, Target, Officeworks, Blackwoods and Priceline Pharmacy.

Wesfarmers has long been considered a leading blue chip stock for the average ASX share portfolio. Wesfarmers has quality assets such as Bunnings, Kmart and Officeworks and pays a consistent dividend to its shareholders.

REA share price

Founded in 1995, REA Group is a Melbourne-based real estate advertising company that is majority owned by News Corp. In Australia, it operates through its platform.

REA Group operates on a global scale and now operates property websites in around 10 countries used by some 20,000 agents. In a typical month, the core Australian website gets over 55 million visits. The business is broken down across geographic lines, with Australia taking the lion’s share of revenue. Within Australia, REA makes money by listing properties for sale or rent (i.e. the agent uses REA’s website to show properties, which the property owner is on the hook to pay). It also makes money from financial services (e.g. mortgage broking), but this is a much smaller part of the business.

Share price valuation

One way to have a ‘quick read’ of where the WES share price is, is to study something like dividend yield thru time. Remember, the dividend yield is effectively the ‘cash flow’ to a share holder, but it can be influenced by yearly or bi-yearly fluctuations. Currently, Wesfarmers Ltd shares have a dividend yield of around 2.95%, which compares to its 5-year average of 3.84%. Put simply, WES shares are trading below their historical average dividend yield.

The REA share price trades at a price-sales ratio of 16.77x, which compares to its 5-year long-term average of 12.29x. So, its shares are trading higher than their historical average. However, please do more investigating than a simple multiple like this. Our websites explain Discounted Cash Flow (DCF), Dividend Discount Models (DDM), and many different ways to value a share, like Rea Group Ltd.

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