Here's Why We Think Coles Group (ASX:COL) Is Well Worth Watching

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a day ago

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Coles Group (ASX:COL). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
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Coles Group's Improving Profits
Even with very modest growth rates, a company will usually do well if it improves earnings per share (EPS) year after year. So EPS growth can certainly encourage an investor to take note of a stock. Coles Group has grown its trailing twelve month EPS from AU$0.77 to AU$0.83, in the last year. That amounts to a small improvement of 8.4%.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. EBIT margins for Coles Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 5.9% to AU$45b. That's progress.
The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.
View our latest analysis for Coles Group
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Coles Group's future EPS 100% free.
Are Coles Group Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a AU$27b company like Coles Group. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they hold AU$53m worth of its stock. This considerable investment should help drive long-term value in the business. Despite being just 0.2% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.
It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Coles Group, with market caps over AU$12b, is around AU$6.4m.
The Coles Group CEO received AU$4.7m in compensation for the year ending June 2024. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.
Does Coles Group Deserve A Spot On Your Watchlist?
One important encouraging feature of Coles Group is that it is growing profits. The fact that EPS is growing is a genuine positive for Coles Group, but the pleasant picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Still, you should learn about the 2 warning signs we've spotted with Coles Group.
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in AU with promising growth potential and insider confidence.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.