Up 12%: Is there still value in Coles shares?

Coles Group Ltd (ASX: COL) has outperformed the S&P/ASX 200 Index (ASX: XJO) in 2026, with its shares up around 12% this year.

At approximately $24.05, they are now trading close to a record high.

So, after that run, is there still value left for investors?

The price reflects high expectations

Coles is not trading like a bargain. According to CommSec, consensus earnings per share forecasts stand at 98.2 cents in FY27, $1.05 in FY28, and $1.15 in FY29.

At the current share price, that puts Coles on a P/E ratio of roughly 24.5 times forecast FY27 earnings.

I think investors are clearly being asked to pay a premium for the predictability and quality of the business.

But the multiple becomes easier for me to accept when I look further ahead. If earnings reach $1.15 per share in FY29, the current price represents around 21 times those forecast profits.

That gradual improvement is a big part of why I still see value here.

Coles has ways to improve what it already has

The growth story does not depend on Australians suddenly buying far more groceries.

Coles has spent heavily on automation across its distribution and online fulfilment operations. I think the next few years can increasingly be about extracting benefits from those investments.

Moving products through the network more efficiently can help with costs and availability, while automated fulfilment gives Coles more capacity to handle online orders as shopping habits continue changing. That is an attractive position for a mature retailer.

Additionally, with its FY26 results this month, Coles said it is accelerating investment in its new store and renewal programs, as well as priority data and technology initiatives, over the next two years.

This includes opening approximately 45 new supermarkets in infill locations and high-growth corridors, as well as the renewal of approximately 150 supermarkets.

Income could rise with earnings

The dividend forecasts also point in a positive direction. Consensus estimates are for fully-franked dividends per share of 83.5 cents in FY27, 88.8 cents in FY28, and 97.4 cents in FY29. This represents dividend yields of 3.5% to 4%.

I would not buy Coles purely for income, particularly at the current share price.

But I like seeing dividend growth alongside the expected increase in earnings. It gives shareholders another way to benefit if the company delivers on the current outlook.

What could go wrong?

A premium valuation leaves less room for disappointment.

Competition with Woolworths Group Ltd (ASX: WOW) and Aldi remains strong, while cost pressures or weaker execution could make achieving the expected earnings growth harder.

That is why I would view Coles as a quality business at a reasonable price rather than a cheap share.

Foolish takeaway

The recent rally has certainly made Coles less attractive than it was at the start of the year.

Still, I think the next few years could justify the premium investors are paying today. Earnings are forecast to keep rising, dividends are expected to follow, and Coles has already made major investments that could improve how efficiently the business operates.

At around $24.05, I still see enough long-term value to consider Coles a buy.