FTSE 250 incumbent Greggs (LSE:GRG) has seen its share price increase recently due t0 reopening and strong trading. Should I buy shares for my portfolio?
FTSE 250 baker
Greggs is the largest bakery chain in the UK and has approximately 2,000 convenience food stores throughout the UK. It specialises in savoury products such as bakes, sausage rolls, and sandwiches as well as sweet treats such as buns and cakes.
The Greggs share price has been on an upward trajectory since the market crashed. As I write, shares are trading for 3,101p per share. A year ago, shares were trading for 1,732p, which is a 79% return. Greggs’ share price was trading at all time highs prior to the crash in February 2020, for 2,440p, and it has surpassed this point
For and against
FOR – Greggs has reported strong performance in recent updates and has a good historic track record of performance. I understand previous performance is not a guarantee of the future but I use it as a gauge. In its recent Q3 trading update, released last month, Greggs reported like-for-like sales were up 3.5% for the Q3 compared to 2019 levels. Delivery sales continued well and 68 net new shops opened too. Full-year guidance has been upgraded ahead of expectations. Historically, revenue and gross profit increased year-on-year for three years prior to last year, which was affected by Covid.
AGAINST – Inflationary pressures as well as staff shortages and the supply chain crisis are potential issues that could affect Greggs. In fact, it points to them in its Q3 update as well. Rising inflation will mean a rise in cost of materials and other things which could affect profit margins. The UK has a well documented supply chain and haulage crisis that could affect deliveries and store operations too. It is worth noting these are industry-wide problems and other FTSE 250 picks will have similar challenges.
FOR – Greggs CEO Roger Whiteside has the necessary industry experience and skills to continue to lead it towards further growth. He has previously had stints at Marks & Spencer and Ocado in the food-to-go sector. In September, he revealed new ambitious expansion plans a the Lunch! Food-to-go exhibition. The last years under his leadership have been positive. Long may it continue!
AGAINST – In recent trading updates, Greggs has reported that trading has surpassed 2019 levels at times. I can’t help but think this is due to reopening and pent up demand. As reopening continues, there is every chance this demand could fade away somewhat. This could affect the bottom line and any potential returns. As well as this, competition is rife in the food-to-go sector which will also affect Greggs.
My verdict
Overall, I believe Greggs’ upward trajectory will continue and I would add shares to my portfolio today. Despite some macroeconomic pressures that could affect it, Greggs has a good track record and I am excited by growth plans which could see its revenues double in five years. This could mean potential lucrative returns for my portfolio. It could be an excellent FTSE 250 growth play for my portfolio.
