What on earth is going on with the Greggs share price?

The Greggs (LSE:GRG) share price just fell 15% this morning (2 July). And while I have been sceptical about the stock recently, I don’t see how this makes any sense.

Trading in the 26 weeks leading up to the end of June was disappointing. But a 15% decline in the share price looks like a big overreaction from my perspective.

What’s the problem?

The headline news is that unusually hot weather has been weighing on sales. Specifically, like-for-like sales growth came in below 2.6% in June after a stronger performance in May. 

As a result, the company expects operating profits for both the first half and the full year to be lower than they were in 2024. And that’s obviously a disappointment.

The news wasn’t all bad. An expanding store count meant overall revenues grew almost 7% and the firm thinks it can keep this going in the second half of the year.

Before the latest news, Greggs shares were already down almost 30% since the start of January. But I don’t think long-term investors have any reason to change their views of the company.

Analysis

This isn’t the first time this year Greggs has pointed to the weather as a reason for weak results. The firm attributed its poor performance in January to challenging weather conditions.

Back then it was too wet and now it’s too hot. That might well be annoying for investors, but if this is what’s weighing on sales, the falling share price looks like a huge overreaction.

Unusual weather is one of the most obvious examples of a short-term issue. And if it really is the reason for weak like-for-like sales growth, it shouldn’t be long before things start to improve.

When January comes around, the comparison base should be relatively low. Assuming the weather isn’t unusually bad for the second time in as many years, results should look up.

Should I buy?

I’ve had reservations about long-term growth prospects at Greggs for some time. But there’s a price at which I think that doesn’t matter – and the stock has probably reached that level.

The company can’t go on opening new stores indefinitely and it’s rapidly reaching saturation point. That means long-term growth is likely to be very close to like-for-like sales growth.

Over the last year or so, this has shown itself to be less resilient than investors might have previously thought. It turns out, the weather is a genuine risk. 

At today’s prices, though, there’s a 4% dividend yield and I think that’s enough to make up for some limited growth prospects in the future. As a result, I’m considering buying the stock.

Final Foolish thoughts

Investing well is about finding shares in quality companies at bargain prices. But this is easier said than done – it involves buying stocks when everyone else thinks it’s a bad idea.

Sometimes they’ll be right and a stock that looks cheap turns out to be a value trap. Investors need to be careful with this and try to avoid these situations wherever possible. 

With Greggs, though, the issues the firm has identified are very short-term in nature. And that makes me think there could be a really good opportunity to consider here.

The post What on earth is going on with the Greggs share price? appeared first on The Motley Fool UK.

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• Here’s where the Greggs share price could end the year
• Less than £20! Is Greggs the best FTSE share to buy for my ISA?

Stephen Wright 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.

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