Greggs (LSE: GRG) is the UK’s leading bakery retailer with over 1,900 shops across the UK. Demand for the bakery chain’s products has skyrocketed in recent years owing to numerous factors. Not to mention the introduction of the vegan sausage roll that fuelled an explosive profit boom! However, are today’s investors too late to the party when it comes to buying shares in Greggs?
Despite the “death of the British high street”, Greggs has continued to grow exponentially over recent years, conquering Britain in the process. Greggs now boasts a bigger UK presence than both McDonald’s and Starbucks owing to significant investment in the business, a quality and expanding range of products, and an open-minded approach to new ideas.
Take the vegan sausage roll as an example. Since its launch in 2018, the bakery chain posted a 58% rise in first-half profit marking the company’s best ever sales growth, according to the Financial Times! The bakery chain opened 138 new shops last year with plans for more to come in 2020, and even upgraded its full-year profit outlook last November thanks to stronger-than-expected sales led mainly by increased customer visits. According to chief executive Roger Whiteside, the traditional sausage roll is still the bakery’s best seller but, the meat-free vegan counterpart has already made its way into the top five best-selling products!
Greggs has become a strong and trusted brand cementing its position as the customers’ favourite for food-on-the-go and it is hard to see this changing any time soon. What attracts many investors to Greggs is the way in which it carries out business in a responsible manner, delivering sustainable long-term growth. The management team at Greggs have shown that not only are they able to spot emerging market trends (as with the recent rise in vegan food products), but also, they are capable of executing an effective strategy which responds to such market trends and satisfy the demands of consumers, delivering when it matters. This ability is key to the success of any firm and the degree to which Greggs has accomplished this reflects a strong business model with great future prospects.
It’s not that all that straightforward though. A P/E ratio of 33.73%, means that shares in Greggs are classified as quite expensive however, it is worth noting that there is undoubtedly a good reason for this, as touched upon briefly in this article. In the final analysis, so long as Greggs can continue to sustainably grow its earnings, then the price of the stock will continue to rise. It’s as simple as that! Don’t be fooled by what may seem a high price to pay for shares in any given company when there is still perhaps plenty of room to grow and expand.
In the case of Greggs, ever-increasing sales combined with the release of more new products such as the vegan steak bake and breakfast options do not signal a business that is in any way slowing down. For the 52 weeks ended 28 December 2019, total sales again rose 13.5% on year and like-for-like sales were up by 9.2%. These figures, coupled with a positive business outlook demonstrate that overall, Greggs is a quality company with the potential for further growth that certainly deserves consideration in any portfolio.
Matthew Dumigan 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.