Coles Group Ltd (ASX: COL) and Wesfarmers Ltd (ASX: WES) are both high-quality ASX shares with strong positions in Australian retail.
They also share one challenge right now: neither looks especially cheap after strong share price performance.
Coles shares are trading around $23.67, close to the upper end of their yearly range of $20.10 to $24.59. Wesfarmers shares are trading around $90.87, compared with a yearly range of $70.80 to $95.18.
Buying either share near its 52-week low would have been a much easier call. At current prices, I think the comparison becomes more about valuation, income, and how much investors are being asked to pay for future growth.
The numbers favour Coles shares
According to CommSec consensus estimates, Coles is expected to generate earnings per share of 90 cents in FY26 and 96.6 cents in FY27.
Based on the current share price, that puts Coles on a price-to-earnings ratio of around 26.3 times FY26 earnings and 24.5 times FY27 earnings.
Wesfarmers is forecast to generate earnings per share of $2.55 in FY26 and $2.74 in FY27.
That puts Wesfarmers on a much higher price-to-earnings ratio of around 35.6 times FY26 earnings and 33.2 times FY27 earnings.
That is a meaningful gap.
I believe Wesfarmers deserves a premium for its track record, culture, and capital allocation. But when forecast earnings growth appears broadly similar over the next couple of years, I think Coles looks more attractive on a valuation basis.
The dividend yield also points to Coles
The income comparison also favours Coles.
CommSec estimates dividends per share of 75.5 cents in FY26 and 82 cents in FY27. That implies forward dividend yields of around 3.2% and 3.5%.
Wesfarmers is forecast to pay dividends per share of $2.16 in FY26 and $2.33 in FY27. That implies forward yields of around 2.4% and 2.6%.
That difference is useful for investors who want income as well as long-term defensive exposure.
Coles also has a fairly simple appeal. Groceries are a repeat purchase. Customers may change habits, trade down, or shop around more carefully, but food and household essentials remain part of everyday spending.
That gives Coles a defensive quality I value in the current environment.
I still like Wesfarmers shares
I would still be happy to buy Wesfarmers shares for the long term.
The company has an excellent record of building strong retail businesses, managing capital carefully, and reinvesting in areas where it sees attractive returns.
I also like the breadth of the group. Wesfarmers gives investors exposure to more than one consumer category, and that flexibility has helped it create value over many years.
The issue today is price.
At more than 33 times FY27 estimated earnings, the share price already reflects a lot of confidence. I can see the case for buying a small amount now and adding more if the valuation becomes more reasonable.
Foolish takeaway
I think Coles shares are the better buy today.
Wesfarmers remains a wonderful long-term business, and I would be happy to own it. But Coles offers the cleaner case right now because it trades on a lower forecast earnings multiple and provides a higher forecast dividend yield.
When two high-quality defensive ASX shares both sit near the top of their yearly ranges, I think valuation has to carry more weight.
At current prices, I would buy Coles first and keep Wesfarmers on my long-term buy list.
The post Which is the best buy, Coles shares or Wesfarmers shares? appeared first on The Motley Fool Australia.
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Motley Fool contributor Grace Alvino has positions in Wesfarmers. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.