Any holder of Greggs (LSE: GRG) shares will likely have enjoyed their performance in 2024 so far. I know I have!
And yet this has been one of the stocks I’ve been selling from my Stocks and Shares ISA in August.
What gives?
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Brilliant company
It’s certainly not because I’ve taken a sudden disliking to the food-to-go retailer. It still bears many of the ‘quality’ hallmarks I look for. These include a track record of achieving consistently high returns on the money it puts to work in the business (or what it gets out from what it puts in).
I also love the fact that Greggs stores are so hard to avoid these days. In addition to reaching practically every high street, retail park and travel hub in the land, the company’s low-ticket treats are just the sort of thing consumers want during a cost-of-living crisis.
Fresh evidence of this can be found in last month’s interim results.
In July, the company unveiled a 14% rise in total sales for the first half of the year. That’s almost a billion pounds hitting the tills. Profit was also up a bit over 16% at £74m.
Market-beater
These numbers sent the stock higher and rightly so, in my view. At the time of writing, it’s up 19% year-to-date and closing in on the record high it hit at the end of 2021.
OK, this recent performance is unlikely to have Nvidia holders sweating that they’ve backed the wrong horse. But it’s almost three times the return made by the FTSE 250 index over the same period.
Shareholders have received passive income too. In May, a 46p per share final dividend and a 40p per share special dividend hit my account. Add these to the payouts and capital gains I’ve accumulated pre-2024 and I have a tidy sum of money.
So, what’s the problem?
The issue I have is the valuation.
Greggs shares now change hands for 23 times forecast earnings. That’s not eye-wateringly excessive compared to the average US tech titan. But it’s pretty rich for a sausage roll-seller.
Look, I think this company definitely deserves to trade at a premium to other UK stocks. But that number implies it might need to beat and not just meet analyst expectations to keep the momentum going.
Perhaps it will. But management has made no change to full-year guidance, suggesting the price is now firmly up to date with events (and then some).
Jumping the gun
It goes without saying that the stock could keep rising in price and I’ll end up with egg on my face for selling too soon.
Should this be the case, I won’t be completely gutted: I still own Greggs shares. I just don’t own as many as I used to. And if there’s a market correction or crash for whatever reason, I’ll certainly be looking down the back of the sofa for cash to buy back the stock I sold if I can get it at a lower price.
This might prove to be wishful thinking. Then again, the company practically halved in value in the nine months between January and September 2022. Even the best stocks occasionally go on sale.
For now, I’ll just busy myself with deciding where to invest my profit.
