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Greggs (LSE: GRG) shares have been one of many strongest performers on the FTSE 250 during the last decade. Shareholders can even be completely happy to see that the inventory has climbed an additional 10% this yr.
That beats the FTSE 250, which is up 6.2%. It has additionally outperformed the index over a five-year and 10-year interval, rising 29.6% and 451.4% in comparison with 7.7% and 30.9%.
However with its share value rising, the place does this go away potential traders? Is there room for extra progress? Or has the ship sailed? Let’s discover.
Challenges forward?
Once I take a look at Greggs, I see a number of points which will hinder the agency’s progress.
Firstly, whereas the sausage roll maker has change into extremely fashionable with its good advertising and marketing over the previous few years, I can’t assist however really feel prefer it’s swimming in opposition to the tide relating to long-term consuming habits.
In recent times, there’s been a big push to advertise more healthy consuming. Individuals are extra acutely aware about what they’re placing of their our bodies than ever earlier than and the ultra-processed menu provided by Greggs doesn’t align with a wholesome way of life.
Secondly, the inventory seems costly. It trades on 20.7 instances earnings. That’s above the FTSE 250 common of round 12. Whereas that’s forecast to fall to 18.6 instances for 2026, that also seems overpriced to me.
A resilient enterprise
However then once more, Greggs is resilient. It has confronted challenges earlier than and overcome them. What’s to say it may well’t maintain delivering?
For instance, gross sales final yr rose 19% to £1.8bn regardless of a cost-of-living disaster. A buying and selling replace in Might confirmed that the enterprise had stored up this kind in 2024, with like-for-like gross sales up 7.4%. Because the enterprise put it itself, it’s presently working in “challenging conditions”. However, it appears to be coping simply tremendous.
Wanting forward, Greggs has no plans to decelerate both. It opened 64 new shops throughout the first 19 weeks of the yr. That takes its whole to 2,500. There’s the argument to be made that when budgets are tight, shoppers will revert to Greggs low-cost and cheerful items.
There’s additionally its tasty 2.2% dividend yield to take into accounts. That’s beneath the FTSE 250 common (3.2%). However, its payout has been steadily rising, which is all the time encouraging to see. During the last decade, the corporate has elevated its dividend by 11% a yr on common.
Time to purchase?
However even after weighing it up, Greggs isn’t a inventory I’ll be shopping for at present. We’ve seen the corporate rise from humbling beginnings to a British stalwart. Whereas that’s inspiring, the inventory seems a tad too costly for my liking.
I’m additionally involved about evolving social traits. It’s proved its resilience. Nevertheless, within the years and many years to return, I feel we may see a serious shift in shopper habits.
The FTSE 250 is house to loads of thrilling companies. So, I’ll stay on the seek for my subsequent purchase. I’ve received a number of thrilling corporations on my radar that I’ll be exploring within the weeks to return.
