Investing in a company based on emotions or personal feelings isn’t a good idea. Just because I love this FTSE 250 company’s product doesn’t necessarily mean the stock is going to perform well.
However, even Warren Buffett often invests in companies of which he’s a frequent customer. He famously told Fortune magazine that he’s “one-quarter Coca-Cola” and frequently eats breakfast at McDonald’s — two companies in which he’s been known to invest.
With that in mind, one of my favourite investments — for both its products and performance — is Greggs (LSE: GRG).
Baking up a storm
Starting in 1939 with just one shop in Tyneside, the high street baker is now famous for its sausage rolls (although I’m partial to a doughnut and chicken pasty myself). It’s now grown into a £3.16bn publicly-listed company boasting 2,450 outlets across the UK and revenues exceeding £1.8bn.
Over the past decade, Greggs has been one of the FTSE 250’s top success stories, with the shares skyrocketing 473%. But its recent half-year 2024 results left much to be desired. Revenue increased 14% but net income fell 8.6% and profit margins were down 5.7%. Earnings per share (EPS) also decreased by 5p yet the shares are up 6% since.
Hot and cold
My love affair with the company has included some bumps in the road. The volatile price has flip-flopped between £10 and £30, rising 90% one year only to fall 50% the next. Reflecting the share price, I’ve fallen in and out of love with the baker over the years.
My first experience with the pie shop was love at first sight: a warm and fulfilling experience. But the second visit left me cold and unimpressed. This is due to a clever tax loophole Greggs exploits to keep down its prices. By leaving its pies to get cold once out of the oven, it’s exempt from the VAT applied to hot takeaway food. So unless I arrive soon after the pies are baked, I may be left with a cold taste in my mouth.
However, this tweak clearly hasn’t deterred customers. Greggs took a bet that reliably low prices would be more attractive than consistently hot pies — and it was right. That’s the kind of smart ‘out-of-the-box’ thinking I look for in a long-term partnership. It gives me faith that whatever life throws our way, we’ll get through it — together.
Keeping my options open
Now of course, I’m a loyal guy, but Greggs isn’t the only flavour-filled stock on my radar. Among its competitors, I’m also enticed by Domino’s and JD Wetherspoon — two other foodies that regularly satisfy my hunger. But do they hold a candle to my first love?
With a price-to-earnings (P/E) ratio of 22.7, Greggs is considerably more expensive than Domino’s. Dividend-wise it also falls short, with a yield of only 2% compared to 3.6%. And unlike JD Wetherspoon, its earnings growth rate is less than half the hospitality industry average of 18.3%. So it may grow slower than them in the short term.
But do either of them make the best pies on the high street? Exactly.
This post was originally published on Motley Fool
