Greggs (LSE:GRG) shares have vastly outperformed the FTSE 250 over the previous 5 years. In reality, the inventory’s up a formidable 51.4% over the interval. I’d counsel that’s a formidable feat given the impression of Brexit on provide chains, the impression of the pandemic on gross sales, and the impression of the cost-of-living disaster on demand.
So if I’d invested £1,000 in Greggs shares 5 years in the past, at this time I’d have round £1,514, plus dividends. Assuming I’d have obtained, on common, £20 a yr, meaning my funding would have been price £1,614 at this time.
It is a robust return for a UK inventory. However what would I do now? Money in on my winnings, or make investments some extra of my hard-earned money in Greggs?
Share value targets
I usually discover share value targets a great place to start out when making an attempt to grasp how a lot a inventory needs to be price. The consensus — the common value goal of all of the brokers and establishments — is a powerful barometer.
On this case, Greggs has a median share value goal of £32.14, representing a 15.55% premium from the present share value. That’s actually a optimistic signal for us. In reality, the inventory has eight ‘purchase’ scores, one ‘outperform’ score and three ‘maintain’ scores.
Estimates could be mistaken, however clearly there’s a powerful diploma of positivity about this sausage roll purveyor.
Low-cost rolls, costly inventory
Whereas the consensus is optimistic, I’m not satisfied. Greggs is forecast to earn 135.6p per share in 2024 and 148.9p per share in 2025. In flip, this implies the baker’s buying and selling at 20.7 occasions ahead earnings and 18.6 occasions projected earnings for 2026.
These metrics are extra enticing than once I lined the inventory final month, however I’m not satisfied it represents good worth for cash. It’s the kind of valuation we’d count on from an organization in a sector with excessive limitations to entry like defence or aerospace, not quick meals.
Likewise, I discover it fascinating the market lets tobacco corporations commerce at very low multiples — 5-7 occasions earnings — whereas Greggs, which sells processed meals at low costs, trades at thrice these multiples. Isn’t processed meals additionally below menace from legislative adjustments too?
Two weeks in the past, I had Greggs buying and selling with a price-to-earnings-to-growth ratio of two.2. it once more now, it seems nearer to 2. So if I had been bullish on the inventory, now could be a great time to top off. However this PEG ratio suggests the inventory’s overvalued.
The underside line
Greggs has carried out extraordinarily effectively in recent times, managing margins in a tricky market. In reality, it’s benefitted as prospects sought cheaper meals throughout the cost-of-living disaster.
Nonetheless, issues are altering, and knowledge suggests the British client’s spending extra once more. If developments within the grocery sector are replicated in food-to-go, we might even see Britons transferring away from Greggs in favour of extra premium manufacturers or dine-in choices.
So if I’d invested in Greggs for the final 5 years, I’d be tempted promote and discover myself a stronger funding alternative.
