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It seems that nothing can stop it Greggs (LSE: GRG) price. I FTSE 250 the stock is up 60% in two years, 30% over one year and 11% in the past month.
Hungry Britons can't get enough of its sausages, steak biscuits and doughnuts, while investors can't resist its hot share price.
Greggs also treated us to a high level of marketing. Its fat fayre was a joke, and a plaything at that. Then suddenly, Greggs got into it. And so did all the others. Its vegan sausage roll went viral.
FTSE 250 star turn
Greggs has a street book. My college daughter loves her Gregs branded basketball shorts. His friends also got the joke.
Best of all, it's an affordable joke. I can get a deal on a sausage roll with potato wedges and a smoothie for the price of a bagel from a posh chain's. Both products have grown despite the cost of living crisis, but for very different reasons.
Ironically, while food is cheap, Greggs shares are not. Today, they trade at 23.65 times earnings. That's nearly double the FTSE 250's price-to-earnings (P/E) ratio of 12.4 times. Two years ago, they traded at only 15.54 times. Is that where the joke turns sour?
The stock is generating huge interest for the no-frills bakery chain with a market cap of just over £3bn. Obviously, stocks that do well attract more attention, and Greggs stocks have been doing very well. But is Gregs religion to blame?
It made a good start to 2024, with first-half pre-tax profits up 16% to £74.1m. Total sales jumped by almost 14% to £960.6m. And it's not just selling sausage rolls. Flatbreads, pizzas and frozen drinks continue to grow.
Management intends to increase the total number of branches from about 2,500 today to 3,500. That won't happen overnight. It aims to add between 140 and 160 new stores this year. This provides a solid, long-term opportunity for income growth. Gregs is quick to close inefficient areas, which protects margins.
Hot hot stock
Gregs doesn't just mean the highway. It is open at stations, airports, malls and retail parks. And it may have a huge untapped growth opportunity in the evening opening. It's the perfect place for late night munchies.
There is also a dividend. The trailing yield of 1.96% is below the FTSE 250 average of 3.15%, but that is partly due to the share price boom. Management recently raised an interim dividend of 3p to 19p per share. That's a sweet 18.75% increase.
There is a danger that if people have more money in their pockets, they will upgrade to Gail's and so on. Although if that happens, I wouldn't be surprised if Greggs improves. That's how it rolls.
Another danger is that the joke ends up getting stale. There is a lot of upside in today's Greggs share price. If it's a sales slip, it might take a beat but that's where I'd like to buy it.
I would not buy Greggs shares at today's price. I'll be looking for a better value stock to sink my teeth into. But this is a well-run business with pockets of growth potential. In the end, the joke would be on me.
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