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Rolls Royce (LSE:RR.) has been one of the biggest gainers worldwide. London Stock Exchange Index (FTSE) index over the past 18 months or so. However, I think that Greggs (LSE:GRG) is a better stock to buy for me and my investments.
This is why!
Stellar performance
There is no doubt that Rolls-Royce shares have had a great run of form lately. The stock has risen a massive 210% in a 12-month period, from 146p at this time last year, to current levels of 454p.
A combination of post-pandemic recovery, a new management team and a booming market (with defence spending on the rise due to geopolitical tensions) has helped. During the pandemic, Rolls-Royce was in all sorts of trouble and had massive debt. It is gratifying to see the business turn around.
However, I believe that Greggs shares are more suitable for me and would provide me with better growth and profitability over the long term. In addition, the company has a better track record. However, it is worth mentioning that past performance is not necessarily a guarantee of future performance.
Greggs shares have risen 12% in the same period as Rolls-Royce shares have soared 210%. At this time last year, Greggs shares were trading at 2,560p, compared with current levels of 2,884p.
My investment case
I consider Greggs to be one of the best growth stories of recent years. The speed at which the company has increased its presence, performance and shareholder value is quite remarkable. Plus, I must admit that I am a regular customer and can rarely say no to one of their sweets or cakes.
From a fundamental standpoint, the company has no debt on its balance sheet. Yes, you read that right. This is very important to me as it can help boost returns as well as continue its aggressive growth strategy.
Also, unlike Rolls-Royce, Greggs shares offer a dividend. The current dividend yield is 3.5%. In addition, the company also has a history of offering special dividends. However, I understand that dividends are never guaranteed.
Finally, the stock is trading at a price-to-earnings ratio of 19. I consider this to be a fair value and have no qualms about paying a fair price for a wonderful company, to paraphrase Warren Buffett.
Some investors believe that Greggs' growth could be excessive. However, the company continues to find ways to keep the business going. Some examples include longer opening hours, strategic partnerships with popular delivery companies Uber Eats and Just Eat, as well as partnerships with other retailers such as Tesco, Primark and others to secure more concessions. In my view, there is much more growth and profitability to come.
From a bearish perspective, the current cost of living crisis and wage inflation could put a dent in earnings and returns. The former is a problem as cash-strapped consumers might stop buying takeaways as they struggle with rising grocery bills. The latter could reduce profits and if wages rise, Greggs might have to raise prices, potentially undermining the company's competitive advantage.
