Why Coles and Woolworths shares were flat in May

Here's why the Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL) share prices were flat in May, trailing the the ASX 200.

| More on:
shopping trolley filled with coins representing asx retail share price.ce

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Overall, May was an extraordinary month for ASX shares. The S&P/ASX 200 Index (ASX: XJO) managed to bank an increase of 4.2% for the month, helped in large part by the ASX banks like Commonwealth Bank of Australia (ASX: CBA).

But other some ASX shares weren't really joining in the party.

Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) are 2 examples.

The Coles share price started May at $15.51 per share but ended the month at $15.36, meaning the company actually went backwards by 0.97% over the month.

Meanwhile, Woolworths shares began the month at $35.75 per share and concluded May at $35.34, again, down 1.15%.

So why have Woolies' and Coles' share prices lagged so dramatically over May? And perhaps more importantly, does this mean there might be some buying opportunities right now?

Why Coles and Woolies have been lagging lately

It's worth remembering that both the Woolworths and Coles share prices were holding up remarkably well during the market crash we saw in March. Between 20 February and 23 March, the ASX 200 lost more than 36% of its value. Over the same period, the Coles share price 'only' lost 3.53% and Woolworths was down 16.4%.

It's this defensiveness that is leading Coles and Woolworths to lag the broader market's recovery in my view.

If a stock isn't volatile relative to the ASX 200 during bad times, it typically displays similar inertia during good times.

Are Woolworths or Coles shares a buy today?

It's worth noting that I think Woolworths shares were getting a little overpriced prior to the March crash, which explains why they performed poorly compared to the Coles share price during the crash.

Thus, I would class both Coles and Woolworths shares as 'fairly valued' today, despite their recent market performance.

But 'fairly valued' is still a long way from being a 'bargain buy'.

On current prices, Coles is trading on a price-to-earnings (P/E) ratio of 17.44 and Woolworths on 17.7. Given that the broader ASX 200 P/E is sitting at 18.98 on average, I'm not really too compelled to add these shares to my portfolio today.

But there might be some merit in these 2 ASX giants if you're a dividend income investor. Unlike many other ASX blue chips, I think both Coles and Woolworths will easily be able to fund their dividend payments in 2020. The grocery business is very defensive and should hold up no matter what happens with the economy for the remainder of the year.

So long story short, I would class both Coles and Woolworths as reasonable 'buys' today for dividend income, but not for much else.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. 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.

More on Share Fallers

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A worried man holds his head and look at his computer.
Share Fallers

Why 29Metals, Brainchip, Platinum, and Premier Investments shares are falling today

These ASX shares are having a tough time on hump day.

Read more »

Man with his head in his head because of falling share price.
Share Fallers

Why 29Metals, Atlas Arteria, IDP Education, and Mineral Resources shares are falling

These ASX shares are having a tough time on Tuesday. But why?

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why ALS, EOS, NRW, and Patriot Battery Metals are dropping today

These ASX shares are starting the week in the red.

Read more »

A man looking at his laptop and thinking.
Technology Shares

Why are these ASX tech shares getting smashed today?

Owners of these two stocks are missing out today.

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Share Fallers

Why AGL, Brickworks, IGO, and New Hope shares are dropping today

These ASX shares are having a poor session. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

Why Amcor, Arafura, Brainchip, and South32 shares are tumbling today

These ASX shares are having a tough time on hump day. But why?

Read more »

A young woman holds an open book over her head with a round mouthed expression as if to say oops as she looks at her computer screen in a home office setting with a plant on the desk and shelves of books in the background.
Share Fallers

Why Aussie Broadband, Liontown, Metals Acquisition, and Seek shares are falling

These ASX shares are having a poor session. But why?

Read more »