Over a period of time, everyone’s financial situation changes. I could go from being able to invest thousands of pounds each month to having to stop investing altogether in order to pay for bills. This changing nature of life got me thinking. If I could only spare £100 of my income to buy a growth stock, what would I buy? Here’s my answer.
And the winner is…
After a lot of thought and research, I decided that I’d put my £100 into Greggs (LSE:GRG) shares. The bakery chain is the true definition of a growth stock, with revenue and profits climbing year after year (with the exception of 2021) due to expansion.
Over the past year the share price has risen by 31%. When reading through the latest trading update, it’s clear that momentum is still with the company. For the first 19 weeks of the year, sales were up 17.1% compared to the same period in the previous year. Granted, this takes into account some lingering pandemic impact in early 2022, but not enough to take away from this good increase.
It doesn’t expect cost inflation to increase anymore from current levels, which is another great sign for 2023. In the last annual report, it was forecasting 9-10% inflation for 2023. I believe the worst of inflation is now behind us. Data has shown that pressures are easing and it could hit 5% by year end. If Greggs isn’t having to factor in more negative impacts on costs, this should boost its full-year profits.
More reasons to like the company
During the latest period, Greggs opened another 63 shops. To me, this suggests that the business is still pushing forwards and investing in growth for years down the line. So if I was down to my last £100 to invest, I feel confident that Greggs would be able to increase turnover thank to more locations. In turn, this should loop back to a higher share price as the company becomes more valuable.
Finally, I think the business operates at the right end of the market at the moment. With consumers feeling the pinch, I believe more will start eating at Greggs versus more high-end alternatives. This could fuel further revenue growth.
Taking stock
I have to be realistic that there are still risks associated with the firm. It’s a highly competitive sector on relatively thin profit margins. A brand can quickly fall out of favour with consumers.
Another risk is the physical store presence. Some might see this as the wrong way to go, given the cost of these facilities. Yet the concept of online ordering or having fewer, larger shops don’t seem like a viable alternative in my eyes.
I’m fortunate to not be down to my last £100, but I’m still seriously considering adding Greggs shares to my portfolio in the near future.
