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.