If I’d invested £5k in Greggs shares one year ago here’s what I’d have today

Greggs shares have had a brilliant run but lately returns have slowed. The bakery chain is a high street fixture but how far can it grow?

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Anyone who invested £5,000 in Greggs (LSE: GRG) shares when the UK’s favourite bakery chain listed in May 1993 should be feeling happy today. The stock is up a staggering 4,614% over the subsequent three decades, turning £5k into £235,700.

Actually, our lucky investor would have a lot more than that, assuming they’d reinvested all of their dividends. 

The Greggs share price still has bite. It’s up 400% over 10 years and 50% over the last five. The question, as with every stock, is whether it’s worth snacking on today.

Greggs is a stalwart on most high streets, its shopfronts still serving in town centres that have been hollowed out by online shopping and recession.

Greggs is on a roll

For years, people sneered at Greggs. Today, it’s a cult. The FTSE 250 company’s vegan sausage rolls became a national joke that the company was very much in on. It offers an affordable treat during the cost-of-living crisis. I’m often in there. I can fill up for a third of the price of a trip to my local Gail’s bakery.

Yet over the last 12 months, Greggs shares have idled. They’re up just 0.77%. If I’d invested £5k one year I’d have about £4,995, after stamp duty and charges. Throw in the 2.15% yield and I’d be up to £5,100. It’s thin gruel, something Greggs doesn’t usually offer.

That’s investing for you. No stock goes up in a straight line. Greggs shares are warming up again, rising almost 12% in the last three months. I didn’t buy them 12 months ago, so how about today?

Sales took a beating during lockdown but have bounced back nicely. After falling to just £811m in 2020 they hit £1.23bn in 2021, then rose 22.7% to £1.51bn in 2022. However, 2022 pre-tax profits crept up just 1.8% to £148m, as inflation accelerated input costs.

Greggs should get a boost as inflation falls and consumers have a bit more spending power, assuming that rosy scenario happens.

It’s driving growth by opening new shops, targeting more than 3,000 across the UK as it opens inside supermarkets, railway stations and even airports. There’s a fancy flagship Greggs in Leicester Square. Around 500 shops now open in the evenings.

Could the stock cool?

Broker Numis recently noted that in 2021 management announced its aim to double revenue from £1.2bn to £2.4bn by 2026. It’s already halfway there.

The board is also building up its brand, which includes a fashion tie-up with Primark. My teenage daughter lolls around the house in outsized white Greggs-branded shorts. The cult of Greggs lives on.

It’s a brilliantly managed business that has transcended its roots but is capital-intensive. All those stores and staff cost money. Trading at 23.2 times earnings, the shares are a bit pricey. Also, the dividend per share crept up only slightly last year, from 57p to 59p.

My concern is that growth slows and Greggs turns into a mature dividend stock, but without the yield to match. We’ll know a little more on Tuesday, when Greggs publishes its preliminary 2023 results. I’ll be watching closely, but for now, I’m not buying.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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