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Greggs share price rises 140% in a year: is it too late to buy?

A Greggs doughnut and hot drink sit on a table
Image: Greggs

Shares in food-to-go retailer Greggs (LSE: GRG) are on the move again today, after the company upgraded its profit guidance for the third time since May. Greggs’ share price has now risen 140% over the last 12 months.

The strength and speed of the company’s recovery has impressed me. Customers have flocked back to the group’s stores as the pandemic’s eased. I reckon this business has a strong future and I’d like to own the shares. But with Greggs stock now trading well above pre-pandemic levels, have I left it too late to buy? I’ve been taking a look at the latest numbers.

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Vegan boost

Greggs made headlines when it launched the vegan sausage roll at the start of 2019. And the company has continued to expand its vegan range since that early success. Management says new products, such as the vegan sausage, bean and cheeze melt, have contributed to a 3.5% increase in like-for-like sales so far this year, compared to 2019.

Delivery is another area of growth, with 943 of the group’s 2,146 shops now offering online ordering through Just Eat and click and collect services.

Although the company expects to face pressure from rising food costs, these have been held back so far by Greggs’ policy of pre-ordering key ingredients. As a result, boss Roger Whiteside expects profits this year to be ahead of previous expectations.

New plan to double sales

Whiteside’s widely seen in the industry as a food-to-go expert. During his time at Greggs, he’s transformed the group from a traditional sausage roll-and-pasty-type operator to one of the UK’s largest sellers of takeaway coffee and food.

In a market update today, Whiteside has unveiled a bold new plan to double Greggs’ annual sales from £1.2bn to £2.4bn over the next five years.

Much of the new growth is expected to come from additional stores. Greggs believes it can expand to “at least 3,000 UK shops” and plans to open 150 shops a year from 2022.

Longer opening hours and increased delivery sales are also on the cards. The company’s breakfast offer has been a great success in recent years and Whiteside believes the group can achieve similar success with new hot food options for the evening market. This should also be a natural fit with the delivery services.

Greggs share price: will I buy?

As I write, Greggs’ stock is trading at around 3,000p. That’s equivalent to a price/earnings ratio of around 26 times 2022/23 forecast earnings.

This isn’t cheap, which is a major risk. But the group’s growth ambitions mean profits could rise significantly over the coming years. Should I consider paying a premium today to secure long-term returns? I’ve been crunching the numbers to find out.

My sums suggest that if Greggs could hit its £2.4bn sales target while keeping its profit margins unchanged, then earnings could reach around 212p per share. At today’s share price, that’s equivalent to about 14 times 2026 forecast earnings.

If Greggs continues to execute well, I think there could still be some value here. But it’s not enough to tempt me to buy, as I’d prefer a bigger margin of safety. I plan to wait for a better buying opportunity to add this popular stock to my portfolio.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat N.V. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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