Should investors consider sinking their teeth into Greggs shares?

Greggs shares have been strong performers in recent times. But this Fool is wondering if the stock has more to give going forward.

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The rise of bakery chain Greggs (LSE: GRG) is fascinating. Starting as just one man, John Gregg, delivering fresh eggs and yeast on a pushbike, its shares now trade on the FTSE 250, where the stock has been a strong performer over the last decade.

But while its rise from humble beginnings is inspiring, should investors consider grabbing a slice of the company today?

More of the same?

There are two questions that need answering to figure that out. Where is its share price today? And where could it go?

Let’s start with the former. As I write (10 April), a share in the high street mainstay would set me back 2,778.6p. That’s around the same price I would have paid 12 months. In that time, its budged just 0.1%.

In the last five years however, it’s climbed 50.8%, outperforming the FTSE 250, which is up just 1.1%, by leaps and bounds.

So Greggs has proved to be a fruitful investment for those who got in back then. But I’m more concerned about where it’ll go in the years to come.

Well, some City analysts predict it to reach 3,240p in the next year. That’s a 17% jump from its current price. Considering that, it looks like Greggs shares could be a steal.

Excelling in difficult times

But in reality, there’s more to it than that. The last few years have been a stark reminder that investing isn’t a piece of cake. After all, were slap-bang in the middle of a cost-of-living crisis.

Even so, that hasn’t seemed to faze the company. In fact, it’s actually benefitted from it. Greggs has used the cheap-and-cheerful stigma that surrounds it to its advantage. And it seems to be working.

Last year, sales rose 19.6% to £1.8bn while underlying pre-tax profit also climbed 13.1% to £167.7m. Management has some lofty targets for the times ahead. By 2026, they’re aiming for £2.4bn in revenue.

That impressive growth shows the resilient nature of Greggs. Those are the sorts of companies I’m often keen to own, especially since the UK is in a ‘technical recession’.

An expensive product

But while the products it offers are associated with good value, I’m not sure its stock looks quite the same. Its shares trade on a price-to-earnings ratio of 20. That’s above the FTSE 250 average of 14 and looks rather expensive, in my eyes.

There are other issues I foresee too. There’s been a massive push to promote healthier eating over the past few years as governments and businesses alike continue to try and pedal change. In the long run, I’d only predict this to heighten.

With that in mind, I’d expect customer habits to steer away from purchasing the ultra-processed foods that Greggs has become so famous for. That would no doubt create issues for the business in the future.

Not my flavour

As a result, I’m not convinced that investors should consider Greggs shares today. The business has experienced impressive growth, but its shares are too expensive for my liking and I think it could face increasing challenges.

While I’m not writing off potentially popping into its stores for the odd sausage roll, I won’t be indulging in its stock today.

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. 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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