$GRG.L – Greggs – looks high enough to me

Revenues in Greggs the baker have been growing at about 4.7%pa over the last decade. I don’t see how that justifies a PE in the 20’s.

Greggs is a high-quality company, and it has been knocking out profits for many years. EPS has risen about 4.6% pa over the last decade, similar to the revenue growth. Its EV/Sales and EV/EBITDA is now at the highest level in a decade. Share price momentum over the last 9 months had been excellent, and its relative strength over the last 6 months has been 75%, easily in the top decile.

To be honest, I don’t really see how such momentum can be sustained given the company’s lofty valuation and rather stodgy nature. Surely, if you’re going to play momentum now, you’d look for a story stock or some kind of recovery play. Greggs is too easily valued, and I think that the market has gotten too far ahead of itself on this stock.

I write this piece because I’ve noticed two highly-respected investors take opposite views on this stock.

UKValueInvestor’s John Kingham argued on Seeking Alpha (http://is.gd/QH0fmq) that the stock was too high. Meanwhile, another well-respected investor, Richard Crow, seems to take a bullish view.

As ever, we shall see.

1144p

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About mcturra2000

Computer programmer living in Scotland.
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One Response to $GRG.L – Greggs – looks high enough to me

  1. bargainvalue says:

    After these analysis, GRG.L was moving horizontally, then formed a peak (1355.00) in the end of July. We can see a clear resistance on the level of 1200.00. Right now, we have an interesting situation, because the price came back to this level recently. I performed one month later (June, 1) and the net profit of the company was and are still very good. The P/E ratio is going back to the average level of the hole market (21,38), which means, that the stock price is not overrated anymore. If the price will fall a little bit more and the company will maintain its revenues, we can have a bargain here.

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