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Greggs (LSE: GRG) shares have been one of the best performers on the market. FTSE 250 during the last decade. Shareholders will also be happy to see the stock is up 10% more this year.
This outperforms the FTSE 250, which is up 6.2%. It has also outperformed the index over a five- and ten-year period, rising 29.6% and 451.4% compared to 7.7% and 30.9%.
But with its share price rising, where does this leave potential investors? Is there room for further growth? Or has the ship already sailed? We are going to explore.
Challenges ahead?
When I look at Greggs, I see some problems that may hinder the company's growth.
Firstly, while the sausage roll maker has become incredibly popular thanks to its clever marketing in recent years, I can't help but feel like it's swimming against the current when it comes to long-term eating habits.
In recent years, there has been a big push to promote healthier eating. People are more conscious than ever about what they put into their bodies and the ultra-processed menu that Greggs offers does not align with a healthy lifestyle.
Second, the stock looks expensive. It trades at 20.7 times earnings. That's above the FTSE 250 average of around 12. While it's forecast to fall to 18.6x by 2026, it still seems too expensive to me.
A resilient business
But then, Greggs is resilient. He has faced challenges before and overcome them. What do you mean he can't continue to comply?
For example, last year sales rose 19% to £1.8bn, despite the cost of living crisis. A trading update in May showed the company had maintained this form in 2024, with like-for-like sales up 7.4%. As the company itself put it, it is currently operating in “challenging conditions”. However, it seems like she's coping well.
Looking ahead, Greggs has no plans to slow down either. It opened 64 new stores during the first 19 weeks of the year. That brings the total to 2,500. It can be argued that when budgets are tight, consumers will turn to Gregg's cheap, cheerful products.
We must also take into account its tasty dividend yield of 2.2%. That's below the FTSE 250 average (3.2%). However, his payments have been increasing steadily, which is always encouraging to see. Over the last decade, the company has increased its dividend an average of 11% annually.
Is it time to buy?
But even after weighing it, Greggs is not a stock I will buy today. We have seen the company rise from humble beginnings to become a British stalwart. While that's inspiring, the stock seems too expensive for my taste.
I am also concerned about the evolution of social trends. He has proven his resilience. However, in the coming years and decades, I think we could see a major shift in consumer habits.
The FTSE 250 is home to many interesting businesses. So I will continue looking for my next purchase. I have some interesting companies on my radar that I will be exploring in the coming weeks.
