Why is the Woolworths (ASX:WOW) share price underperforming Coles lately?

Why have Woolworths shares lost to Coles over the past month?

| More on:
A young boy pushing his friend in a shopping trolley race along the road.

Image source: Getty Images

The S&P/ASX 200 Index (ASX: XJO) has given investors a fairly solid performance over the past month.

Since 24 September, the ASX 200 has returned roughly 1% in capital growth, rising from 7,342.6 points to the 7,415.5 points it closed at on Friday. One ASX 200 share that’s beaten this performance is the Woolworths Group Ltd (ASX: WOW) share price.

Over the same period, Woolworths shares have lifted from $39.29 apiece to Friday’s close of $40.29 per share. That’s a healthy rise of 2.55%, more than double the broader ASX 200. But before all of you Woolies shareholders pop the champagne, here’s a fact that might stick in the craw.

Not to be beaten by its arch-rival Woolies, the Coles Group Ltd (ASX: COL) share price has done one better. Coles shares are up an impressive 5.22% over the same period, going from $17.06 a share on 24 September to Friday’s close of $17.95. That’s double what Woolies shares have managed.

So why has Coles comprehensively outperformed its rival Woolworths?

Why has the Woolworths share price lost out to Coles?

Well, it’s not exactly clear. There hasn’t been much in the way of major news or announcements out of either company in the past month.

However, there have been a number of developments that might give us some hints.

Firstly, let’s talk about Coles’ CEO. Stephen Cain came out a fortnight ago and told investors that Coles was expecting “a record Christmas” in 2021. As my Fool colleague Tristan covered at the time, Cain stated that “there’s $100 billion extra sitting in people’s bank accounts. We expect a fair share of that to be spent on food and drink”.

There has been no such optimism coming out of Woolworths though, so perhaps investors have acted accordingly.

Another thing to note is the pointed opinions on Coles shares from expert investors. As my Fool colleague James covered earlier this month, broker Morgans is ultra-bullish on Coles shares right now, giving the supermarket giant a 12-month share price target of $19.80. That implies a future potential upside of 10.3% over the coming 12 months.

Experts take their share pick

In contrast, there is arguably less optimism for Woolies shares at their current level. We also recently covered brokers’ opinions on Woolworths, with my colleague noting that “most brokers don’t think Woolworths is a buy right now, with several price targets around the $40 mark”. One in particular, Credit Suisse, reckons Woolies shares could drop as low as $31 a share over the next 12 months. That would be a loss of more than 23%.

This divided expert opinion might have been weighing on investor minds over the past month or so.

At a purely fundamental basis, Woolworths shares are also more expensive than Coles right now. That’s just going off of the price-to-earnings (P/E) ratio metric. At the last pricing, Woolworths shares had a P/E ratio of 33.01, while the Coles share price only commands a P/E ratio of 23.84.

It might be a combination of all of these factors that have led to Coles shares outperforming Woolworths over the month just gone. At the last Woolworths share price, this company has a market capitalisation of $48.83 billion, and a dividend yield of 2.68%.

Should you invest $1,000 in Woolworths right now?

Before you consider Woolworths, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Woolworths wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Consumer Staples & Discretionary Shares