In 2013, Greggs (LSE: GRG) shares were less than 400p. Now, they’re trading not far from 2,400p.
Does that mean we have missed the boat? Well, maybe. Or maybe not. The upside in stocks is theoretically unlimited and as long as a business can keep sustainably growing its earnings, then there is no reason why the stock can’t keep going up.
Greggs has benefitted from a national rollout and by providing low-cost food en masse. But whereas Greggs used to be associated with ‘cheap’, its image is no longer that of a price-focused baker for those who cannot afford to pay more. Greggs has made huge inroads among more affluent consumers, and has certainly improved the quality of its offering.
In the company’s last trading update on November 11, it announced that its own-shop like-for-likes were up 8.3% for the six weeks to November 9 against the previous year’s comparative period.
Total sales were also up 12.4% in this period. That does not sound like a business that is slowing down.
The release of the ‘vegan roll’
Last year, Greggs released the ‘vegan roll’ — a vegan-friendly take on its classic sausage roll. This was an astounding success, with the launch attracting much publicity. Management clearly tapped into an unmet need and has been rewarded with stellar results.
By having the foresight to be ahead of the competition and get a vegan product out there early on, the company has benefitted from a market that had previously been ignored and under-serviced.
Should you buy Greggs stock?
I have previously been a shareholder of Greggs — and I bought back in recently. Clearly, the company is doing the right things. The release of the new vegan steak bake shows that management is focusing on the right market, and others are following suit as both Costa and McDonald’s announced this month menu changes that will include more vegetarian options.
The company has a strong balance sheet, with net assets coming in at £335.5m.
Receivables stand at just over £23m, with payables slightly above £114m. This is great, because it means Greggs is collecting cash from its buyers a lot faster than it is paying out its suppliers.
If receivables were a lot higher, then this would mean a lot of cash is owed to Greggs that has not actually been paid. Because receivables are much lower in relation to payables, we can assume that Greggs has good cash collection procedures.
High payables is also a good thing for the firm, because what this really means is that cash stays in the business for longer.
The company is growing, and has an eye now on the breakfast market. This is an area where Greggs has been poor but aims to improve this. It is also currently in the process of opening drive-through units.
My personal opinion is that Greggs is a quality company and there is further upside in the share price. However everyone has different investment strategies and risk profiles. But I certainly think anyone could do far worse than considering this stock as an addition to a portfolio.
