The Coles (ASX:COL) share price is down 10% in two days: Time to buy?

Is the Coles Group Ltd (ASX:COL) share price in the buy zone after a 10% decline since the release of its half year results this week…

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The Coles Group Ltd (ASX: COL) share price was out of form again on Thursday and tumbled lower.

The supermarket giant’s shares finished the day 5.5% lower at $16.23.

This means the Coles share price is now down 10.5% over the last two trading sessions.

Why is the Coles share price tumbling lower?

The catalyst for this decline has been the release of Coles’ half year results on Wednesday.

Although the company delivered a strong result, concerns over market share losses and a tough near term outlook have been weighing on the Coles share price.

In case you missed it, Coles reported an 8% increase in revenue to $20,569 million and a 14.5% increase in net profit to $560 million for the six months ended 31 December. This was driven by solid growth across all segments.

While this outperformed the market’s expectations, this wasn’t due to its Supermarket segment.

According to a note out of Goldman Sachs, it was forecasting an 8.7% jump in Supermarket sales to $18,022.6 million. However, Supermarket sales only rose 7.6% to $17,800 million.

The broker commented: “Coles delivered a 1H21 result modestly ahead of expectations with sales +8.1% to A$20.4bn and EBIT +12.1% to A$1.02bn, 2% ahead of GSe although the outperformance came from the lower value non-food divisions.”

Based on this growth rate, it appears to believe Coles is losing supermarket market share to rivals Metcash Limited (ASX: MTS) and Woolworths Group Ltd (ASX: WOW).

What else was weighing on the Coles share price?

The other catalyst for the weakness in the Coles share price was management’s comments in relation to the second half.

It warned: “Depending on COVID-19, vaccine roll out and efficacy, and other factors, sales in the supermarket sector may moderate significantly or even decline in the second half of FY21 and into FY22. Coles will be cycling elevated sales from COVID-19 in Supermarkets late in the third quarter, for the remainder of the second half, and most of FY22.”

Is this a buying opportunity?

Despite the above, Goldman Sachs remains very positive on the company. As such, it has retained its buy rating but trimmed its price target slightly to $20.70.

This price target implies potential upside of 27.5% over the next 12 months. This increases to over 31% if you include its 3.8% fully franked dividend yield.

Goldman commented: “While it will likely be difficult to grow top line sales growth in this environment, we expect profits to be modestly easier to maintain given elevated costs in the base and COL’s ongoing cost out program, “Smarter Selling” which is on track to deliver A$250mn in cost out this year.”

“We have made only modest revisions to group EBIT +0.8% and +1.1% in FY21 and FY22, as improved earnings in Liquor and convenience offset a 1-1.5% decline in our Food EBIT forecasts. We revise our Price Target -1.9% to A$20.70, implying a 24.2% [then] forecast total return. Maintain Buy.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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