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After falling by 40% in six months, the Greggs (LSE: GRG) share worth is wanting deeply unloved. Traders have taken fright because the sausage roll specialist has reported slowing gross sales development.
It’s not a fairly image. However the inventory market is thought for its dramatic temper swings. Has the latest sell-off gone too far? I can definitely see some causes to suppose so.
On a ahead price-to-earnings ratio of simply 14, my analysis suggests Greggs shares are presently cheaper than they’ve been for 10 years.
The corporate’s working revenue margin additionally stays above common for this sector, at 10%. Environment friendly operations and an absence of financial institution debt helped the enterprise generate a return on fairness of 28% final yr – a really sturdy determine.
And the enterprise remains to be rising. Gross sales rose by 11% final yr to simply over £2bn, supporting an 8% rise in pre-tax revenue to £204m. These numbers are very respectable and don’t appear to counsel a enterprise that’s in decline.
So why have Greggs shares been falling?
The inventory market is all concerning the future, not the previous. So far as I can see, the primary cause why Greggs’ share worth has been falling is that buyers are beginning to surprise if the corporate’s development has peaked.
In any case, final yr’s 11% gross sales rise was supported by 145 internet new retailer openings.
Gross sales in shops which have been open for greater than a yr rose by simply 5.5%. That compares to an equal development determine of 13.7% in 2023.
Worse nonetheless, the corporate mentioned that within the first 9 weeks of 2025, so-called like-for-like gross sales development slowed to simply 1.7%. It blamed dangerous climate in January, however gross sales development has now been slowing for greater than a yr.
I’m wondering if Greggs could possibly be reaching a pure restrict on its dimension. In any case, the corporate now has greater than 2,600 retailers within the UK. That’s roughly the identical as Costa Espresso and practically 50% greater than McDonald’s.
Why I’m tempted to purchase
But I believe Greggs is a superb food-to-go operator and a superb advertising organisation. I anticipate it is going to stay profitable.
Though I do anticipate development to sluggish over the approaching years, I believe the shares may nonetheless be a worthwhile funding on the proper worth.
So, is the worth proper for me immediately? The shares are presently buying and selling on a ahead P/E of 14 with a 3.6% dividend yield. As I discussed at the beginning, I reckon that is most likely the most affordable they’ve been for round 10 years.
Nevertheless, I can’t ignore the chance that Greggs may face a tough yr forward, maybe triggering a reduce to earnings forecasts.
It’s attainable that I’m being too cautious. However for an additional margin of security, I’d prefer to see some signal that slowing gross sales development has levelled out earlier than I resolve to take a position. Greggs will keep on my watchlist for slightly longer.
