Coles Group Ltd (ASX: COL) shares have made an impressive start during the first half of 2025, with the supermarket giant's stock rising 13% since January.
After the psychotic volatility in global markets these past few months, investors have bid Coles stock up from a March low of $18.47 to a close of $21.33 apiece following Wednesday's session. Last week, they nudged a new high when closing at $22.48 apiece.
But can this momentum continue? Let's break down what analysts think and what could drive Coles' stock even higher.
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Coles shares rally into May
Coles' performance has been notable in recent months, both on its stock price chart and the underlying business.
In its Q3 FY25 update, the supermarket giant reported a nearly 3.5% increase in group sales revenue, totalling $10.4 billion.
Its supermarkets division continued to lead, with sales up 4%. Excluding tobacco, supermarket sales grew by almost 5%.
One takeout was Coles' online business, with eCommerce sales surging more than 25% year over year to reach over $1 billion. At the time of writing, that's about 3.5% of the company's market capitalisation of $28.6 billion.
For a company producing this amount of market capitalisation in revenue for a single division, investors are now paying nearly $26 for every $1 of trailing profits to buy Coles shares, with a price-to-earnings (P/E) ratio of 26x.
According to Commsec figures, this is more than 40% higher than the company's average annual P/E of 18.8x during the calendar year 2024 and higher than any average annual P/E going back to 2019.
Analysts are still bullish on Coles
Despite a slight dip in Coles shares following its quarterly update, brokers still project further upside for the supermarket giant in capital gains and dividends.
Macquarie Group has maintained its buy rating for Coles and set a 12-month price target of $23.10 per share. This implies a potential upside of around 8% from its current price of $21.33 before the open on Thursday.
The broker says the company is benefiting from initiatives like its Automated Distribution Centres and investment to meet customer demand, factors which could inflect positively on Coles shares.
Meanwhile, according to Commsec, the consensus broker opinion rates Coles a buy, and the average price target is $21.33, as per TradingView.
The consensus view also projects Coles to produce around 94 cents per share in earnings in 2026, and dividends of 75.6 cents, which is a forward yield of 3.5% at the time of writing.
Foolish Takeaway
With a solid base in both physical and online retail, brokers project that Coles shares could continue to rise over the next 12 months.
As a side note, I would urge investors to pay attention to the current valuation of 26x P/E, which, according to the data, is expensive relative to the company's history.
Ultimately, time will tell what happens from here.
