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Any holder of Greggs (LSE:GRG) shares have likely enjoyed their run in 2024 so far. I know they have!
And yet this has been one of the stocks I've been selling from my stocks and shares ISA in August.
What's happening?
Brilliant company
It's not that I've suddenly disliked the takeaway food retailer. It still retains many of the “quality” hallmarks I look for, such as a track record of consistently delivering high returns on the money you put into the business (or what you get in return for what you put in).
I also love the fact that it's so hard to avoid Greggs stores these days. As well as hitting virtually every high street, retail park and travel hub in the country, the company's budget deals are just the sort of thing consumers want during a cost-of-living crisis.
Further evidence of this can be found in last month's interim results.
In July, the company announced a 14% increase in total sales for the first half of the year. That means almost £1bn has hit the tills. Profits also rose by just over 16% to £74m.
Market Outperformer
These numbers sent the stock soaring, and rightly so in my opinion. As of this writing, it is up 19% year-to-date and is approaching the all-time high it hit at the end of 2021.
Okay, this recent performance is unlikely to have Nvidia The headlines are sweating because they bet on the wrong horse, but it is almost three times the return obtained by the FTSE 250 Index index over the same period.
Shareholders have also received passive income. In May, a final dividend of 46p per share and a special dividend of 40p per share arrived in my account. Add to this the payouts and capital gains I have accumulated before 2024 and I have a considerable sum of money.
So what's the problem?
The problem I have is the valuation.
Greggs shares now trade at 23 times expected earnings. Not an outrageous figure compared to the average US tech giant, but still quite high for a sausage roll seller.
Look, I think this company definitely deserves to trade at a premium to other UK stocks, but that figure implies it may have to beat, not just meet, analyst expectations to maintain momentum.
That may be so, but management has made no changes to its full-year guidance, suggesting that pricing is now firmly in line with developments (and more).
Getting ahead of events
Needless to say, the stock price could continue to rise and I will end up looking ashamed for having sold too soon.
If I did, I wouldn't feel completely gutted – I still own Greggs shares, but I don't have as many as I used to. And if there is a correction or a market crash for whatever reason, I'll certainly be looking for cash to buy back the shares I sold if I can get them at a lower price.
This may be wishful thinking, but the company's value has practically halved in the nine months between January and September 2022. Even the best stocks go on sale from time to time.
For now I will simply focus on deciding where to invest my profits.
