Greggs (LSE: GRG) shares went public in the early 1990s. Since then, they’ve served up some mouth-watering gains, with the Newcastle-based baker going on to become a staple on the British high street. With dividends retained, a £10k investment made back then would be worth over £500k today.
But what if I’d invested half that amount only a decade ago? How much would I have now? Let’s take a look.
A jumbo-sized winner
Over the last 10 years, there has been a very savoury 492% rise in the Greggs share price. That means my five grand investment would have grown to around £29,600 today.
That’s significantly more than I would have generated investing that amount of money in an index tracker fund mimicking the performance of the FTSE 100, FTSE 250, or even the S&P 500.
However, that market-beating return isn’t all. The icing on the cake would have been the £4,600 or so in dividends I’d have received along the way. They would have taken my overall return to over £34,000.
Why have Greggs shares performed so well?
A show of resilience
The big trend that the company has really capitalised upon over the last decade and beyond is food on the go. Customers include tradespeople in vans, busy commuters, or office workers grabbing a bite to eat behind their desks.
We can see this in the locations where Greggs bakeries have increasingly popped up — airports, train stations, petrol stations, and so on. They’re all places where people are on the move. So it’s no surprise to see Greggs opening more drive-throughs as well lately.
Like McDonald’s, the company has a knack for creating wildly popular products, including the Steak Bake and its vegan sausage rolls. That’s not an easy feat.
Financially, the chain’s growth over the last 10 years has been tremendous. Revenue has gone from £762m in 2013 to an expected £1.5bn this year. The number of shops has risen from 1,671 to 2,378 over the same period. Meanwhile, earnings per share (EPS) have more than tripled, increasing from 33.2p to 117.5p.
In recent years, unlike many high street shops, Greggs has managed to shrug off the cost-of-living crisis in the UK. Indeed, it has even taken market share as people flock to its bakeries in search of reasonably priced food.
The company hopes to expand its estate to more than 3,000 shops as part of its long-term growth strategy. Also, it has extended its opening hours in strategic locations and is seeing big growth in customers buying food after 4pm.
What about the next decade?
Having said all that, there are a couple of things for investors to bear in mind, I feel. The first is that expanding the store count isn’t cheap, especially in today’s inflationary environment, so costs are worth keeping an eye on. Additionally, the shares are expensive, trading at 20 times this year’s anticipated earnings.
This suggests the company’s growth prospects may be fully baked into the share price. Any operational hiccups from here could send the stock lower.
Nevertheless, I reckon the firm’s popular brand, loyal customer base and excellent balance sheet make this a high-quality stock. And if I had spare cash today, I’d buy Greggs shares to hold for the next decade.
