Greggs shares: is the worst over?
This year will have been humbling for anyone holding Greggs (LSE: GRG) shares. As of yesterday (30 September), we’re talking about a company whose value had dropped over 40% in just a few months, partly as a result of stalling sales growth.
But today’s Q3 update from the sausage roll seller has seen the very same share price jump.
Are there reasons for thinking that the pain might be about to ease?
Green shoots
Encouragingly, sales were 6.1% higher in the 13 weeks to 27 September. At least some of this was put down to the cooler weather we’ve seen across the UK in recent weeks. This makes a lot of sense. After all, who wants to munch through a warm pasty on the sort of seriously-hot days we witnessed in the UK over the summer?
The company continues to make progress at an operational level too. While concerns of ‘peak Greggs’ persist among some analysts (it already has 2,675 shops), the firm is targeting 120 net openings this year. Elsewhere, a couple of new distribution centres in Derby and Kettering are due to open in the coming years.
Perhaps most importantly, management chose to leave its expectations on full-year performance unchanged. This was in contrast to the profit warning announced in July.
Taken as a whole, it’s not all that hard to see why the market is breathing a sigh of relief today.
A favourite with short-sellers
Not everyone believes we’ve seen the bottom, though. Out of interest, Greggs is high up the list of the most shorted stocks in the UK. So, at least a proportion of traders are betting that things will get worse before they get better.
They might be right. Consumer confidence remains battered and inflation has been rebounding over the last 12 months. November’s forthcoming Budget is already causing a lot of concern.
It’s also worth noting that company-managed shop like-for-like sales were up only 1.5% in the quarter (against the same period in 2024). In the first half of the year, it was 2.6%. So, sales are still slowing at the Newcastle-based business.
Already cheap
Of course, no one knows what happens next in the stock market. That includes usually well-researched and informed short-sellers.
On an optimistic note, Greggs shares changed hands at a price-to-earnings (P/E) ratio of just 12 yesterday. That’s lower than the long-term average among UK stocks. It’s also a massive step-down from the firm’s average P/E over the last five years (28). The forecast dividend yield also stood at 4.2% — higher than the average in the FTSE 250.
Here’s what I’m doing
As someone who profited from the huge rise in the Greggs share price in the past, I’ve long seen this as a potential re-buy if and when the price looks sufficiently tasty. Is that now?
Well, I do think there’s less risk in this stock than when it was trading above 3,000p a pop, back when sold my position in August 2024. And the arrival of the colder weather will conceivably make the food-on-the-go retailer more attractive to famished office workers and travellers.
Then again, I’d like to see more buying from directors as a sign of confidence that things are getting back on track.
I’m keeping my powder dry for now.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
