Picture supply: Getty Photographs
Shares in Greggs (LSE:GRG) are down 11% on Thursday (9 January) after the corporate’s This fall buying and selling replace. And looking out on the report, I don’t assume it’s arduous to see why.
General, revenues elevated by slightly below 8%, with round 2.5% coming from like-for-like gross sales progress. That’st sturdy, however is the large drop within the inventory the shopping for alternative I’ve been ready for?
Gross sales progress
Whereas 8% progress might sound fairly good, context is all the things in relation to the inventory market. It means the agency’s charge of gross sales progress has been slowing constantly since 2021.
Greggs income progress 2015-24
Created at TradingView
Moreover, Greggs is a progress inventory – and is priced like one. Firstly of the week, it was buying and selling at a price-to-earnings (P/E) a number of of 21, which signifies traders predict strong progress forward.
Greggs P/E ratio 2024-24
Created at TradingView
On prime of this, like-for-like gross sales rising by 2.5% is a barely worrying signal. It implies that the remainder of the rise has come from Greggs opening extra shops, which it received’t be capable to do indefinitely.
When the agency reaches its eventual capability by way of shops, the one method it is going to be capable of continue to grow will probably be like-for-like gross sales. And the latest replace coming in under inflation is a priority.
Outlook
The outlook for 2025’s additionally pretty underwhelming. Greggs is anticipating to open between 140 and 150 new retailers this yr, in addition to relocating 50 of its current shops.
Once more, context is vital. The corporate at present has 2,618 venues, that means the anticipated new openings will solely improve the prevailing retailer depend by round 5.5%.
Meaning like-for-like revenues are going to have to choose up in an effort to generate vital gross sales progress. Given the difficulties within the final quarter, I’m not shocked to see the share value falling.
Is that this my alternative?
From an funding perspective, I believe there’s quite a bit to love about Greggs as a inventory. Regardless of weak This fall gross sales, its enterprise mannequin of offering low-cost meals to individuals is one I believe’s going to show sturdy.
Over the long run I anticipate this to even be comparatively resilient in tough financial environments. And the agency has a really sturdy steadiness sheet with £125m in web money, which ought to add to its resiliency.
The massive query in my thoughts is what value I’m keen to purchase it at – and that comes right down to its future progress prospects. The corporate’s aiming for 3,000 retailers, nevertheless it’s quickly closing in on that degree.
That doesn’t go away a whole lot of room for additional progress, particularly if same-store gross sales don’t do rather more than offset the results of inflation. And that’s why I’m not dashing to purchase the inventory proper now.
It’s getting shut
Even after the newest decline, the Greggs share value continues to be round 10% greater than the place I’d like to purchase it. However given the stress UK shares have been beneath, it’d effectively get to this degree.
Given the aggressive pricing of its merchandise, I believe overpaying for Greggs shares can be an ironic mistake. So I’m trying to be affected person with this one – however I’m hoping for a shopping for alternative.
