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2025 has not been a very good one for shareholders in excessive road favorite Greggs (LSE: GRG). The sausage roll supremo has had its stuffing knocked out, with Greggs shares falling 42% for the reason that flip of the yr.
May it’s that the worst is behind us and issues would possibly get higher from right here? As somebody who has loaded up on Greggs shares over latest months, that query is one which has been on my thoughts!
Alarming share value efficiency
Though the share value has moved up barely over the previous week or so, it’s nonetheless 5% decrease over the previous month alone.
In a single sense, the value crash seen this yr has been good. It has boosted the dividend yield, now standing at a tasty 4.3%.
It has additionally meant that the valuation appears more and more enticing, with the shares now buying and selling on a price-to-earnings (P/E) ratio of 11. That’s markedly decrease than it has been at some factors over the previous few years.
That comes with an enormous caveat, although. Whereas the P/E ratio primarily based on final yr’s earnings appears low cost, it won’t be if potential earnings fall.
That’s precisely what occurred within the first half of the yr. Final month’s interim outcomes confirmed the baker’s diluted earnings per share falling 16%. That adopted a revenue warning that mentioned full-year working revenue could possibly be “modestly beneath” that of the prior yr.
Cut price purchase or worth lure?
Even a 5% drop destroys worth. £1k invested in Greggs shares only a month in the past has already shrunk in worth to £950.
If the slide continues – and this yr’s chart to this point is just not a reasonably one – the worth destruction might proceed.
Which may occur. The corporate’s revenue warning final month hardly impressed confidence. Blaming weak gross sales progress partly on scorching climate raises a query about how adaptable Greggs’ product choice is and whether or not the pie and pasty vendor is doing sufficient to accommodate the notoriously fickle British local weather.
I even have some considerations about present administration. A flat interim dividend didn’t impress me and I reckon plans to increase distribution of a frozen vary to Tesco subsequent month might backfire.
I concern it might harm what the Greggs model stands for. I reckon some prospects can be scratching their heads as to why they need to purchase in a Greggs store as an alternative of simply buying the frozen product at Tesco and heating it up themselves.
If administration doesn’t present it may restore confidence within the Metropolis, I feel its days could possibly be numbered. That uncertainty alone could possibly be unhealthy for the share value. In the meantime, if income fall on the full-year degree, seemingly low cost Greggs shares might grow to be a worth lure.
However whereas first-half like-for-like gross sales progress was disappointing, it was nonetheless progress. Because of new store openings, complete first-half gross sales grew a decent 7% yr on yr.
With a robust model, loyal buyer base, and compelling worth proposition for shoppers, I reckon Greggs has what it takes to get its mojo again.
In that case, I feel Greggs shares at right now’s value might seem like a cut price a yr or two from now. That’s the reason I’ve been shopping for.
