Rolls-Royce (LSE: RR.) has been one of the biggest winners across the FTSE index in the past 18 months or so. However, I reckon Greggs (LSE: GRG) is a better stock to buy for me and my holdings.
Here’s why!
Stellar performance
There’s no doubt that Rolls-Royce shares have had an excellent time of things lately. The shares have risen a mammoth 210% over a 12-month period, from 146p at this time last year, to current levels of 454p.
A combination of post-pandemic recovery, a new leadership team, and a burgeoning market – in the shape of defence spending increasing due to geopolitical tensions – has helped. During the pandemic, Rolls-Royce was in all sorts of trouble and in huge debt. It’s pleasing to see the business has turned a corner.
However, I just think Greggs shares are a better fit for me, and would provide better long-term growth and returns. Plus, the business has a better track record. Although, it is worth mentioning that past performance isn’t necessarily a guarantee of the future.
Greggs shares are up 12% over the same period that Rolls-Royce shares have soared 210%. At this time last year, Greggs shares were trading for 2,560p, compared to current levels of 2,884p.
My investment case
I reckon Greggs is one of the best growth stories of the past few years. The rate at which the business has grown its presence, performance, and shareholder value is quite remarkable. Plus, I must admit I’m a regular customer, and can rarely say no to one of its sweet treats or pastries.
From a fundamental view, the business has zero debt on its balance sheet. Yes, you read that correctly. This is huge for me, as it can help boost returns, as well as continue its aggressive growth strategy.
Next, unlike Rolls-Royce, Greggs shares offer a dividend. The current dividend yield stands at 3.5%. Plus, the business has a track record of providing special dividends too. However, I do understand that dividends are never guaranteed.
Finally, the shares trade on a price-to-earnings ratio of 19. I see this as fair value, and have no qualms paying a fair price for a wonderful company, to paraphrase Warren Buffett.
Some investors think Greggs growth could be overcooked. However, the business continues to find ways to keep the gravy train running. A few examples include longer opening hours, strategic partnerships with popular delivery firms Uber Eats and Just Eat, as well as partnerships with other retailers such as Tesco, Primark, and others for further concessions. In my view, there’s lots more growth and returns to come.
From a bearish view, a current cost-of-living crisis and wage inflation could put a dent in earnings and returns though. The former is a problem as cash-strapped consumers could move away from takeaway treats as they battle higher essential bills. The latter could take a bite out of profits, and if wages go up, Greggs may need to increase prices, which could dent the firm’s competitive advantage.
