The Zip Co Ltd (ASX:ZIP) share price has increased 348.4% since the start of 2024. The Coles Group Ltd (ASX:COL) share price is 22.1% off its 52-week low.
ZIP share price in focus
Zip Co was founded in 2013 and is a financial technology company. It offers a buy-now-pay-later (BNPL) service that is popular among retail consumers.
Zip allows customers to purchase items immediately and repay them over interest-free instalments.
Zip operates on a global scale with over 79,300 retail partners and 6 million customers. In September 2020, Zip acquired US-based BNPL company Quadpay to further establish itself in the US market.
COL shares
Coles is an Australian retailer providing customers with everyday products including fresh food, groceries, general merchandise, liquor, fuel and financial services. It was founded in 1914 in Victoria which it still calls its home base.
Coles was formerly owned by conglomerate Wesfarmers from 2007 until 2018, when it was spun-off and listed as a separate entity on the ASX under the ticker symbol ‘COL’. Coles’ earnings are dominated by the supermarkets side of the business, however, it partly or fully owns or operates adjacent businesses like flybuys, Liquorland, First Choice, Vintage Cellars, Coles Express and more.
While Coles is in a way the ‘little brother’ to Woolworths, it still controls a significant share of the Australian grocery market (about 28%). In its short time as its own listed entity, Coles has established itself as a handy and reliable dividend payer.
ZIP share price valuation
As a growth company, one way to put a broad estimate on the ZIP share price could be to compare its price-to-sales multiple over time. Currently, Zip Co Ltd shares have a price-sales ratio of 3.51x, compared to its 5-year average of 5.81x, meaning its shares are trading below their historical average. This could mean that the share price has fallen, or sales have increased. In the case of ZIP, revenue has been growing over the last 3 years. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
Since it is a more of a ‘blue chip’ company, we could look at the dividend yield of COL to determine its value. COL is offering a trailing dividend yield of around 3.76%, which compares to its 5-year average of 3.76%. Be careful how you interpret this information though – it could mean that dividends have fallen, or that the share price is increasing. In the case of COL, last year’s dividend was greater than the 3-year average, so the dividend has been growing.
The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the COL share price.”)
