A couple of FTSE 250 companies are set to release trading updates this week – both on the 10th. One is Greggs (LSE:GRG) and the other is Persimmon (LSE:PSN).
In both cases, I’m going to be watching closely. But my reasons for being interested in each are quite different.
Greggs
Greggs is on the list of stocks I’d like to buy. The stock currently trades at a price-to-earnings (P/E) ratio of just under 20, which is intrinsically fairly high but low compared to its historic levels.
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The stock fell 7% when the business reported earnings in August as inflation cut into operating margins. Despite this, revenue and profits still showed what I thought was decent growth.
Since then, though, inflation in the UK has fallen significantly. So I’ll be interested to see how this is affecting the company’s profitability and how far this is an ongoing risk.
In addition, I’ll be looking to see how the firm is progressing towards its ambition of 3,000 outlets. To my mind, the potential growth from new stores is an important part of justifying its 20 P/E ratio.
I think customers associate Greggs with consistency, convenience, and low prices. As a result, I suspect it might hold up better than its competitors if the UK enters a recession in 2024.
I’m therefore looking to use the trading update for two things. The first is to assess the view of the company that I have and the second is to look for a potential buying opportunity.
Persimmon
By contrast, Persimmon isn’t really a stock I’m interested in buying. In the UK housebuilder space, I prefer Taylor Wimpey or Vistry, but I have an interest in the space for a number of other reasons.
I own shares in brick manufacturer Forterra, as well as real estate investment trusts Primary Health Properties and Supermarket Income REIT. Each of these is related to the property market.
With Forterra, the company makes more money when construction output is strong. And Primary Health Properties and Supermarket Income REIT both stand to benefit from higher property prices.
I misjudged the effect of rising interest rates on property prices in 2023. The fall in the housing market was much less sharp than I had anticipated.
The reason is that lower demand (which I did foresee) was offset by a drop in supply (which I did not). As a result, the impact of increased borrowing costs was less profound than I expected.
I’ll therefore be interested in any information about how many houses Persimmon is building and how much it is selling them for. This might well offer useful data for the stocks I do own.
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Trading updates
Working out which stocks to buy, in my view, involves knowing how the business is performing. But it also involves understanding how the company fits into the wider industry.
Trading updates can be useful for both of these purposes. That’s why I’ll be paying attention when these FTSE 250 companies issue their reports this week.
