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FTSE 250 constituent Greggs (LSE: GRG) has been a prime performer on the index. Within the final decade, its shares have risen a staggering 464.4%. By comparability, the FTSE 250’s up simply 30%.
This 12 months, they’ve additionally outperformed the index. The Greggs share worth has climbed 16.4%. The FTSE 250, however, is up 4.4%.
However this spectacular development has me questioning what could possibly be subsequent for the sausage roll maker? Is there any worth left to squeeze out of its share worth? That’s what I need to reply.
Valuation
Let’s start with its valuation. That may give us a great base to work with. I’m going to evaluate Greggs utilizing the important thing price-to-earnings (P/E) ratio.
As proven beneath, the inventory trades on a P/E of twenty-two.6. The FTSE 250 common is round 12. Based mostly on that, Greggs seems to be costly.
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However what if we glance forward? Arguably, that’s extra vital. Effectively, its ahead P/E, as seen beneath, paints an identical image. Whereas it’s cheaper, that’s not by a lot. Its ahead P/E is 21.3.
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The enterprise
So it could seem like Greggs is overvalued at the moment. However the agency’s development lately has been good. What’s to say it doesn’t sustain this robust efficiency? If it does, that may most definitely translate right into a rising share worth, proper?
Its newest outcomes are a testomony to its development trajectory. For the primary half of the 12 months, gross sales rose 13.8% to £960.6m, whereas revenue earlier than tax was up 16.3% to £74.1m. Its interim dividend additionally rose a wholesome 18.8% to 19p.
Which means the enterprise continued with its tremendous type from final 12 months. Throughout 2023, whole gross sales climbed 19.6% to £1.8bn. Revenue earlier than tax additionally jumped 13.1% to £167.7m.
That’s even with the robust financial circumstances we’ve confronted in current instances, akin to a cost-of-living disaster. That mentioned, it was at all times doubtless {that a} enterprise like Greggs, which focuses on offering an inexpensive menu, was set to thrive throughout these instances. Its outcomes definitely present that.
Lengthy-term tendencies
However as a long-term investor, there’s a difficulty that issues me. There’s been a big push to advertise more healthy consuming habits lately.
Many customers are actually extra acutely aware than ever about what kind of meals they put of their physique. Whereas it could style good, the ultra-processed meals Greggs has to supply doesn’t align with a wholesome way of life.
Plans for development
In fact, that’s discrediting the truth that Greggs is a enterprise with extremely robust model recognition and massive plans for development. It opened 51 web new shops within the first half of 2024. It plans to open 140-160 new shops for the entire of the 12 months. Going ahead, Greggs has its sights set on opening as much as 3,500. It at the moment has just below 2,500.
Higher alternatives
However even contemplating that, I’m cautious. And with its shares wanting costly, I’ll be steering away from Greggs. For now, it’ll keep on my watchlist. I see higher alternatives within the FTSE 250 I plan to capitalise on.
