Should You Be Adding Greggs (LON:GRG) To Your Watchlist Today?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like 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.

See our latest analysis for Greggs

How Fast Is Greggs Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Greggs managed to grow EPS by 16% per year, over three years. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Greggs maintained stable EBIT margins over the last year, all while growing revenue 31% to UK£1.4b. That's encouraging news for the company!

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Greggs' future EPS 100% free.

Are Greggs Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

While Greggs insiders did net UK£88k selling stock over the last year, they invested UK£290k, a much higher figure. This overall confidence in the company at current the valuation signals their optimism. Zooming in, we can see that the biggest insider purchase was by Executive Officer Roger Whiteside for UK£189k worth of shares, at about UK£24.21 per share.

Is Greggs Worth Keeping An Eye On?

One important encouraging feature of Greggs is that it is growing profits. It's not easy for business to grow EPS, but Greggs has shown the strengths to do just that. The cherry on top is the insider share purchases, which provide an extra impetus to keep and eye on this stock, at the very least. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Greggs that you should be aware of.

Keen growth investors love to see insider buying. Thankfully, Greggs isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.