Since going public in the 1990s, Greggs (LSE: GRG) shares have delivered some mouth-watering returns.
In fact, the Newcastle-based bakery/food-to-go chain would have transformed every £100 invested back then into £4,250 today. Add in the generous sprinkling of dividends on top and it would be a lot more than that.
That’s incredible value creation and is exactly the type of long-term investment I’m looking for as a buy-and-hold Foolish investor.
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But what if I’d only bought Greggs shares three years ago? How much would a £10k purchase be worth now? Let’s find out.
Still on a healthy roll
Three years ago, the Greggs share price was 1,673p (£16.73). Today (1 December), it’s 2,466p. (£24.66).
That’s a very palatable rise of 47.3%. It means my £10,000 would have grown to around £14,730.
Again though, that’s not all. Cash dividends would have taken my total return to around £15,750.
This is actually a better return than the S&P 500 over the same length of time. That’s the US index with well-known tech giants like Apple, Microsoft, and Amazon at the top.
Why has the stock performed so well?
Gourmet Greggs
The big trend the company has long been capitalising on is food on the go.
Specifically, an affordable range of meal deals and comforting snacks located in areas where there’s high footfall. That’s people on the move in airports, railway stations, petrol stations, shopping centres and so on.
But the company is expanding to meet customers wherever is convenient. It’s opening drive-throughs at a rapid clip and has delivery partnerships with Just Eat and Uber Eats to bring food to the front door too.
Plus, there are now Greggs cafes in some Primark stores, as well as select Tesco, Sainsbury’s and Asda supermarkets. And for the next month there’s Bistro Greggs, its first “Parisian-inspired” pop-up restaurant located in the Fenwick department store in Newcastle.
Looking at the gourmet menu, I like the sound of the Greggs Benedict. This is a “Greggs Sausage, Bean and Cheese melt, reimagined with smoked ham, poached Cacklebean eggs and a velvety Hollandaise sauce“.
I could easily imagine myself sitting down to that halfway through my Christmas shopping trip!
Peak Greggs?
The company has grown impressively over the last three years. In 2020, it generated £87m in net profit from revenue of £1.1bn. This year, it’s expected to post net profit of £121m from £1.5bn in revenue.
However, this has left some investors worrying whether the UK market is now saturated and we’ve reached ‘peak Greggs’.
Just how much growth is left in the tank?
Quite a bit I reckon. The company has extended its opening hours beyond 4pm in strategic locations and is seeing increasing amounts of customers. These are tempting for workers returning home and people heading out for a night on the tiles.
Beyond this, international expansion is back on the cards, though this does present risks. After all, it did pull the plug on its Belgium experiment 15 years ago.
Nevertheless, if successfully executed, there could be huge untapped global growth opportunities over the long term.
Meanwhile, the stock looks reasonably priced trading at 18 times trailing earnings.
If I wasn’t already a shareholder, I’d buy some Greggs shares to hold for the next decade.
