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Is the Coles share price a buy?

Is the Coles Group Limited (ASX: COL) share price a buy today?

Coles has seen its share price go up by 11% since the start of March 2019, so it’s doing quite well for shareholders since the end of reporting season.

The third quarter of Coles FY19 was fairly pleasing, it shows that investors may have been right to be a bit more optimistic after February.

As a reminder, Coles said its third quarter Supermarket sales to 24 March 2019 grew by 3.2% to $7.27 billion, with comparable sales growth of 2.4%. Liquor sales also grew by 4.3% to $735 million with comparable sales growth of 3.5%.

Even more impressive was Coles Online growth of 27%, with those sales now being over $1 billion on a rolling 12-month basis.

What I liked about the update was that it showed Coles can continue to grow its top line even though it’s facing intense competition and decreasing price pressures – supermarket prices fell 0.9% in the quarter excluding tobacco and ‘fresh’

When you consider that Woolworths Group Ltd (ASX: WOW), Aldi, Costco, Amazon and so on would love to take market share from Coles, it’s quite difficult for Coles to raise prices or profit margins. Aldi, Costco and Amazon would happily lower their prices if necessary.

I really appreciate the effort by Coles management to try new things to grow profit such as its transaction relating to the sale of economic rights of its hotels business, making a new arrangement with Viva Energy Group Ltd (ASX: VEA) for Coles Express and planning to open smaller Coles stores in metro areas.

Foolish takeaway

Coles is currently trading at just under 20x FY20’s estimated earnings with a projected FY20 grossed-up dividend of 6%. This isn’t a terrible price and I would much rather own shares of Coles compared sitting on cash for the long-term, but I think there are better opportunities out there at the current prices.

For example, these top ASX shares look good value and could be good market-beaters. I’d certainly prefer them to Coles.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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