Greggs (LSE:GRG) shares have vastly outperformed the FTSE 250 over the previous 5 years. Actually, the inventory’s up a formidable 51.4% over the interval. I’d recommend that’s a formidable feat given the affect of Brexit on provide chains, the affect of the pandemic on gross sales, and the affect of the cost-of-living disaster on demand.

So if I’d invested £1,000 in Greggs shares 5 years in the past, at present I’d have round £1,514, plus dividends. Assuming I’d have acquired, on common, £20 a yr, which means my funding would have been value £1,614 at present.

This can be a robust return for a UK inventory. However what would I do now? Money in on my winnings, or make investments some extra of my hard-earned money in Greggs?

Share worth targets

I typically discover share worth targets a great place to begin when making an attempt to grasp how a lot a inventory needs to be value. The consensus — the common worth goal of all of the brokers and establishments — is a powerful barometer.

On this case, Greggs has a mean share worth goal of £32.14, representing a 15.55% premium from the present share worth. That’s actually a constructive signal for us. Actually, the inventory has eight ‘purchase’ scores, one ‘outperform’ ranking and three ‘maintain’ scores.

Estimates might be fallacious, however clearly there’s a powerful diploma of positivity about this sausage roll purveyor.

Low-cost rolls, costly inventory

Whereas the consensus is constructive, I’m not satisfied. Greggs is forecast to earn 135.6p per share in 2024 and 148.9p per share in 2025. In flip, this implies the baker’s buying and selling at 20.7 occasions ahead earnings and 18.6 occasions projected earnings for 2026.

These metrics are extra engaging than once I coated the inventory final month, however I’m not satisfied it represents good worth for cash. It’s the kind of valuation we’d anticipate from an organization in a sector with excessive boundaries to entry like defence or aerospace, not quick meals.

Likewise, I discover it fascinating the market lets tobacco corporations commerce at very low multiples — 5-7 occasions earnings — whereas Greggs, which sells processed meals at low costs, trades at thrice these multiples. Isn’t processed meals additionally below risk from legislative adjustments too?

Two weeks in the past, I had Greggs buying and selling with a price-to-earnings-to-growth ratio of two.2. it once more now, it seems nearer to 2. So if I had been bullish on the inventory, now can be a great time to replenish. However this PEG ratio suggests the inventory’s overvalued.

The underside line

Greggs has carried out extraordinarily properly lately, managing margins in a tricky market. Actually, it’s benefitted as prospects sought cheaper meals throughout the cost-of-living disaster.

Nonetheless, issues are altering, and knowledge suggests the British client’s spending extra once more. If tendencies within the grocery sector are replicated in food-to-go, we might even see Britons shifting away from Greggs in favour of extra premium manufacturers or dine-in choices.

So if I’d invested in Greggs for the final 5 years, I’d be tempted promote and discover myself a stronger funding alternative.