Is the Coles Group Limited (ASX: COL) share price worth buying today?
The supermarket business could well be on its way to overtaking Woolworths Group Ltd (ASX: WOW) in terms of sales growth with several positive factors.
For example, it was revealed this week that Coles would be working with Microsoft to build enterprise software that would be used for improving on-shelf stock levels, analysing customer preferences and other useful initiatives for stores.
We also learned that, according to reporting by the Australian Financial Review, Woolworths is losing ground to Coles and is in danger of falling behind in supplier support, partially due to price discounting, according to a UBS survey of 50 suppliers.
In recent months Coles has also announced that it is working with Ocado on its two new automated distribution centres (delivered by Witron) that will be operational in the next few years.
All of the above says to me that Coles is trying to up its game, particularly with its focus on becoming the most sustainable supermarket and offering more healthy private label items like fish and vitamins.
Obviously the main thing that counts is sales growth and profit growth, but I think all of the above efforts will improve Coles' growth figures over the medium-term, not necessarily just the next quarter.
I find it very interesting that Coles and Woolworths are both shrinking towards just being supermarket businesses. Coles is divested the economic rights to its hotel business and Woolworths is on track to divest its hotel and drinks business.
I really don't know if shrinking to just their core competency is a good idea. The supermarket industry is very competitive with Aldi, Costco and so on continuing to grow nationally. It might be necessary to keep additional revenue sources to do well.
Foolish takeaway
Coles is trading at 22x FY20's estimated earnings with a projected grossed-up dividend yield of 5.4%. Whilst I've been impressed with the growth plans that Coles has, I'm uncertain if it's worth buying at today's price considering how slow profit growth is likely to be in the coming years.
