Sausage roll specialist Greggs (LSE: GRG) has really whetted the appetite of traders in recent months, the stock having gained 13% since the start of 2017 alone. This means the retailer is now dealing at its most expensive since last June.
Share pickers took reassurance from Greggs’ full-year financials in February when the firm advised that total sales chugged 7% higher in 2016, to £894.2m, and that like-for-like sales rose 4.2%.
Chief executive Roger Whiteside cautioned that all may not be plain sailing looking ahead, however, warning that “the UK consumer outlook is more challenging than we have seen in recent years, with industry-wide pressures emerging in commodities as well as labour costs.”
Still, investors bought into the Greggs head honcho’s belief that “we are confident of making further progress as we implement our plan to grow Greggs as a contemporary food-on-the-go brand.”
Growth picture getting better
The pie and pasty specialist has been a reliable growth generator in recent years, although bottom-line expansion has cooled more recently and a fractional rise is forecast for the current year. And current City forecasts result in a P/E ratio of 17.6 times that tops the widely-considered value benchmark of 15 times.
Having said that, I believe Greggs’ initiatives to get earnings chugging higher again make it worthy of a premium rating. The baker’s multi-year programme to tap into the food-on-the-go market is paying dividends, with refreshments to its menus — like the introduction of new coffee blends and deluxe sandwich ranges — going down a storm with hungry shoppers. And Greggs’ extensive store refurbishment programme is also attracting people through its doors in vast numbers.
The number crunchers certainly believe in the effectiveness of such measures, and earnings growth is expected to rev higher again from 2018 when a 7% rise is anticipated. And I reckon Greggs should dish up chunky profits increases in the longer term too.
Build a fortune
The earnings outlook over at building materials giant Grafton Group (LSE: GFTU) is also getting better thanks to robust trading conditions at home and abroad.
The investment community is becoming increasingly-attracted to the company’s improving revenues outlook, and Grafton has subsequently seen its share price rise 36% since the start of the year. The FTSE 250 play is now dealing at levels not seen since July 2015.
Although the market remains competitive in the UK, Grafton still saw revenues shoot 12% higher during 2016 to a record £2.5bn. Not only do the company’s Selco trade stores continue to outperform their peers in Britain, but the retailer is also benefitting from a favourable building environment in Ireland and the Netherlands. Indeed, Grafton saw daily underlying revenues across the Irish Sea alone shoot 13.9% higher during January and February.
Like Greggs, the City expects earnings expansion to slow at Grafton in the more immediate future, and expansion of 3% is chalked-in for 2017.
But this figure still creates a very-reasonable P/E ratio of 15.3 times. And profits growth is expected to gain a head of steam from 2018 — an 8% rise is currently forecast by the abacus bashers. I reckon Grafton has what it takes to keep on charging higher.
