2 things I'm waiting for before buying Coles shares

I'm waiting for two things before I add Coles to my share portfolio.

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I've long expressed interest in buying Coles Group Ltd (ASX: COL) shares. I think Coles is a high-quality company with a defensive, moat-protected earnings base and an impressive dividend track record. Sounds like a no-brainer, right?

Well, I wouldn't mind accepting some Coles shares for free right now. But I won't be buying them today with my own money. There are two reasons why.

2 things I'm waiting for before buying Coles shares

I want to see the momentum continue

Investors were delighted with Coles' latest earnings report that we got a good look at last month. Coles reported a 3.7% increase in sales revenue to $22.22 billion. Underlying earnings were up 4.1% to $1.9 billion, whilst underlying profit after tax from continuing operations was down 0.3% to $626 million.

Investors were buoyed by this report, especially in the context of Coles' arch-rival Woolworths Group Ltd (ASX: WOW) reporting food sales growth of just 1.5% over the same period. Coles has long played second fiddle to Woolworths in the Australian grocery and supermarket space. So to see the company apparently gain some ground was evidently very exciting for investors.

Since Coles' earnings report was released, the Coles share price has gained around 4%. Conversely, since Woolworths' report came out, Woolies shares have shed just over 11%.

This is great news, but I would like to see further progress at Coles over the rest of 2024 before I make an investment. If the company can keep clawing market share away from Woolworths, it would give me a strong incentive to add Coles to my share portfolio.

I'd like to see Coles shares cheaper

Whilst the rise in the Coles share price has no doubt been pleasant for shareholders, I would like to see a dip before I buy into the company. Today, Coles is trading at $16.50 a share at the time of writing, down 0.12% for the day thus far.

However, it was only a few months ago that those same shares were under $15 each. Since the end of October, Coles has gained more than 10%.

This has pushed up Coles' price-to-earnings (P/E) ratio to around 21.95 but pulled the company's dividend yield down to 4%.

I'd consider this fair value for Coles, but not a screaming bargain. If we saw Coles back under the $15 mark, that's when I'd start loading the boat.

I may have missed my chance last year. But if the company can continue to show growth whilst dropping to a more attractive share price, I'd find it very hard not to add Coles to my ASX share portfolio.

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 has positions in and has recommended Coles Group. 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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