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yesterday, Greggs (LSE:GRG) shares managed to trade above 2,800p, just a few pence away from their 52-week high. It has jumped an incredible 50% in the past six months to reach this level (up 11% in a year).
Given the strong 2022 results, I wonder if we could be approaching a breakout move for the Greggs share price.
A reason to rejoice
The quarterly update on H2 last year suggests that full year results will be impressive. Therefore, the share price has been rising for some time on the basis of momentum and better than expected financials.
The full release came last month, highlighting a 23% growth in total sales compared to last year. Part of this was driven by a record 186 new store openings, supporting revenue growth. It is targeting another 150 net openings (accounting for closings as well) this year.
This all helped refine pre-tax profits to £148.3m, up 1.9% from 2021.
In addition to optimism about further store openings this year, there are other reasons why the stock could continue to rise. Revenue should increase due to pushing store opening hours later. About 500 shops open until 20:00, or later, more are pushed in this direction.
The business also finished the year with a good cash position of £191.6m. This means having the necessary funds to make investments in 2023 to accelerate growth.
Too much of a good thing
On the other hand, I know that the business has grown rapidly in recent years. It’s easy to grow metrics quickly when the company is small. But Greggs may struggle going forward to achieve similar numbers. After all, it’s just there become there are many Greggs stores to visit. just there become many sausage rolls that customers will demand.
Another point I note is that the price-to-earnings ratio is 23.24. Although this is not crazy high, it is definitely more outside the target area than the ratio of 10 to buy a good value. It can be argued that this is a growth stock, so it should have a higher ratio based on future earnings expectations. However, I must remember to buy stocks that are potentially overvalued.
The cost of living crisis could affect sales this year. But on balance, Greggs is not a luxury brand. If anything, I think demand could increase as customers switch from more expensive alternatives to buying Greggs products!
A more incoming rally?
I think the Greggs share price could push higher this year and beyond. This is based on the growth forecast and strategy outlined in the annual report. As for the share price, if it can make a new high, the next price I would look for is the January 2022 price of 3,400p.
I’m looking to buy some Greggs shares with the free cash later this month.
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