Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Greggs (LON:GRG). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
How Fast Is Greggs Growing?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. We can see that in the last three years Greggs grew its EPS by 16% per year. That growth rate is fairly good, assuming the company can keep it up.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Greggs achieved similar EBIT margins to last year, revenue grew by a solid 31% to UK£1.4b. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Fortunately, we've got access to analyst forecasts of Greggs' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are Greggs Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
While Greggs insiders did net UK£88k selling stock over the last year, they invested UK£290k, a much higher figure. An optimistic sign for those with Greggs in their watchlist. We also note that it was the Executive Officer, Roger Whiteside, who made the biggest single acquisition, paying UK£189k for shares at about UK£24.21 each.
Is Greggs Worth Keeping An Eye On?
As previously touched on, Greggs is a growing business, which is encouraging. While some companies are struggling to grow EPS, Greggs seems free from that morose affliction. The real kicker is that insiders have been accumulating, suggesting that those who understand the company best see some potential. We don't want to rain on the parade too much, but we did also find 1 warning sign for Greggs that you need to be mindful of.
The good news is that Greggs is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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