The saying goes, ‘Hindsight is a wonderful thing.’ Well, when it comes to Greggs (LSE: GRG) shares, I wish I had bought some shares sooner!
Let’s break down whether or not the sausage-roll supremo is still one of the best stocks for me to buy.
Gravy train keeps going!
The Greggs growth story from a share price, earnings, presence, and returns view is a fantastic one. It’s one of the reasons I’m a bit gutted that I didn’t join the party earlier. However, I still put plenty of money in their till as I can’t resist a sweet treat or baked delight from one of their stores, which I can’t seem to get away from no matter where I go.
Recent developments include the Greggs share price continuing its impressive ascent, as well as excellent trading news.
The shares are up 31% over a 12-month period from 2,365p at this time last year, to current levels of 3,114p.
Interim results released at the end of July revealed an impressive 14% rise in total sales for the business. For context, this equates to £1bn hitting the tills. I won’t comment on how much money I contributed here through my personal sweet tooth! Furthermore, profit rose by 16% compared to the previous period last year.
The present and the future
Let’s dig into some fundamentals today to help me answer my titular question. I’ll admit the current valuation is a tad high for my liking. The shares trade on a price-to-earnings ratio of close to 23. Is growth already priced in here? Could earnings take a hit and dent investor appetite? I’ll keep an eye on this. However, I’m also of the belief that sometimes you must pay a premium for the best stocks out there.
From a returns perspective, a dividend yield of 3.34% is attractive, but nothing to write home about. This could grow, in line with the way the business has. However, I do understand that dividends are never guaranteed.
Greggs doesn’t look like it’s resting on its laurels with growth firmly on the company’s agenda. This is shown by strategic partnerships with delivery giants including UberEats and Just Eat to reach another market. Furthermore, it continues to target key concessions such as travel hubs like rail stations and airports. Plus, it has extended opening hours to boost sales and earnings.
Risks and my verdict
I have two main issues. The recent cost-of-living crisis has shone a spotlight on the need for consumers to make their budgets stretch further. Cutting down on sweet treats could hurt Greggs’ earnings and returns if the current volatility continues long term. Continuing with the trend of economic turbulence, wage inflation could mean a price rise, which could hamper the firm’s competitive advantage too. I’ll keep an eye on both issues moving forward.
Personally, I reckon Greggs is an excellent investment and there’s plenty of growth ahead. It’s certainly one of the best stocks to buy on the FTSE 250 index, in my view.
I’ll be watching with interest to see if I can gain a better entry point to snap up some shares when I next have some free funds.
