When high street baker Greggs (LSE: GRG) decided to launch a vegan sausage roll, I don’t think management realised how big of a success the new product would be.
Today, the group announced a 14% increase in sales for the first seven weeks of its 2019 financial year thanks, in part, to consumers’ demand for the company’s flagship vegan product.
Like-for-like sales in company-managed shops rose 9.6% in the first few weeks of its financial year, with total sales topped up by new store openings. Unfortunately, this growth boost is already running out of steam. The firm noted in today’s release that the rate of sales growth has already eased slightly in February.
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Nevertheless, when you consider the fact that the rest of the high street is struggling, and analysts have been speculating for some time that Greggs’ growth has run its course, this expansion is extremely impressive and shows there’s plenty of life left in the business. That’s why I am recommending the company for your portfolio today.
Market-beating
Over the past decade, shares in Greggs have produced an average annualised return for investors of around 17%, that’s more than double the FTSE 250 average annual return over the same timeframe.
Some analysts had speculated that, after this considerable growth run, Greggs would struggle to repeat this performance. However, it seems the group still has plenty of tricks up its sleeve. City analysts had been expecting the enterprise to report earnings growth of less than 1% for 2018, and just 6.7% for 2019. But looking at today’s sales figures, it seems as if analysts will be going back to their spreadsheets over the next few weeks to rework their estimates, and there could be substantial revisions higher when the new projections are published.
With this being the case, I think it’s easy to justify the stock’s current valuation of 23.3 times forward earnings. Greggs isn’t a one trick pony. It’s shown over the past five years it can quickly adapt to changing consumer tastes, first with the introduction of new healthy products, and now with the vegan sausage roll. I think it’s worth paying a high valuation for such a unique and flexible business.
One-of-a-kind
Another one-of-a-kind business that I think is worth paying a premium for today is Games Workshop (LSE: GAW). Several years ago, analysts were prepared to write off this producer of fantasy miniatures. There was no way the group could compete with the rise of mobile phone games and games consoles, analysts argued.
As it turns out, the City was wrong about the business’s ability to reinvent itself and, over the past five years, the company has gone from strength to strength. Operating profit has nearly quadrupled since 2013 and investors have been well rewarded, with the stock up more than 500% since the end of February 2014.
I don’t see any reason why this trend is going to come to an end anytime soon. The company has a cash-rich balance sheet and generates an impressive operating margin of 33%, giving it plenty of firepower to invest in new products or reinvent itself, if needs be.
The stock is currently dealing at a forward P/E of 18.7, which seems appropriate considering the group’s impressive profit margins. There’s also a 3.8% dividend yield on offer.
