Greggs (LSE: GRG) has been a top performer on the FTSE 250 over the last decade. During that time, its shares have climbed a magnificent 491.5%. By comparison, the index is up 31.5% during the same period.
This year they’ve carried on that fine form. Where the FTSE 250’s up 7.3% year to date, Greggs has risen 21.3%.
I’ve been keeping a close eye on the stock. And its strong performance has me pondering whether now’s the right time for me to sink my teeth in and add it to my portfolio. Let’s delve in.
Room for more growth?
There are a couple of ways I can go about exploring whether Greggs would be a shrewd addition to my holdings today. The first is by looking at the stock’s valuation.
While there are multiple valuation metrics I could use, I’m opting for the key price-to-earnings (P/E) ratio. As seen below, Greggs’ current P/E is 23.7.
Created with TradingView
Considering the FTSE 250 average is around 12, Greggs looks on the expensive side. Looking ahead tells a similar tale. As the chart below highlights, its forward P/E is 21.3.
Another metric I can use is the price-to-sales (P/S) ratio. Looking at this, Greggs appears slightly better value for money. As seen below, its current P/S is 1.7. That’s around in line with its 10-year median.
Created with TradingView
More to consider?
But aside from its valuation, what else is there to consider? Well, as an income investor, I’m always keen to see if a stock offers the potential to provide passive income.
Greggs does. The stock has a yield just shy of 2%. That’s below the FTSE 250 average of 3.3%. But its payout has been steadily on the rise and there’s plenty to suggest it could keep heading upwards. To start, the business lifted its interim payout by 3p to 19p per share, an 18.8% rise from last year.
Incredible growth
On top of that, it’s difficult to ignore the brilliant growth Greggs has posted in recent years despite the ongoing cost-of-living crisis.
For the first half of the year, sales rose by nearly 14% to £960.6m. Alongside that, profit before tax jumped by over 16% to £74.1m.
That builds on its solid form from last year, where total sales rose by nearly 20% to £1.8bn and profit before tax climbed by 13% to £167.7m.
I’m not sold
With that growth, Greggs has big plans for expansion. In the years to come, management’s aiming to increase its total number of stores to 3,500, a large increase from the 2,500 it has today. This year, it has its sights set on opening up to 160 new branches.
But as an investor who buys stocks with the aim of holding them for decades, there’s one major concern of mine with Greggs. I can’t help but feel like the firm’s swimming against the tide when it comes to healthy eating habits.
Many consumers are now focused more than ever on what they put in their bodies. And Greggs’ ultra-processed food doesn’t exactly bode well for a healthy lifestyle.
Even despite its rise, that, coupled with its high valuation, put me off the stock. I’ll be keeping it on my watchlist for now.
This post was originally published on Motley Fool
