Could the Greggs share price double from here?

Many shoppers of Greggs (LSE: GRG) select its pies or sausage rolls for his or her stuffing. However the Greggs share worth has had the stuffing knocked out of it, falling by 49% because the finish of 2021.

In different phrases, it has kind of halved. Might it double, getting again to simply above the place it was?

I’ve been shopping for Greggs shares this 12 months due to my optimism within the funding case. However I do see some potential hurdles alongside the best way to restoration.

A stable primary enterprise case

To begin with, take into account why traders used to suppose Greggs deserved the next share worth. Quite a lot of these elements are nonetheless related as we speak, in my opinion – and certain for the foreseeable future.

Its big store property and give attention to its house market give the baker economies of scale in addition to a transparent strategic route. Demand for reasonably priced and handy meals will not be solely excessive, however resilient.

In the meantime, Greggs has spent many years constructing its product vary, model, and buyer base.

All of these issues assist to provide it a agency basis for ongoing business success and future development, in my opinion. Certainly, this month the corporate reported that the primary 9 months of this 12 months noticed whole gross sales develop 7% 12 months on 12 months.

What’s gone unsuitable?

But when the fundamental enterprise case is compelling now and was again in 2021, why has the Greggs share worth virtually halved?

A couple of causes will help clarify the autumn.

A shock earnings warning this summer season raised questions on administration confidence and in addition highlighted how Greggs’ providing (particularly scorching meals) may even see its attraction wane as climate or shopper preferences shift.

Declining foot visitors in lots of excessive streets additionally threatens Greggs’ enterprise. Alternatively I believe the chain has accomplished a very good job to construct its out-of-town enterprise in addition to opening new areas in busy areas like transport hubs.

Is the aggressive panorama altering?

Scottish baker Bayne’s is rising its presence north of the border in a part of Greggs’ conventional heartland. Such competitors might find yourself placing worth stress on Greggs. This might make it tough to boost promoting costs. At a time when employment prices are rising, that could be a danger to profitability.

I believe this appears to be like tasty!

Nonetheless, are any of these dangers existential?

They don’t appear to be it to me.

As a substitute, Greggs looks like a sexy enterprise that’s simply driving the ups and downs of typical business existence.

Over the long term, it has created substantial shareholder worth.

The present dividend yield is 4.1% — and the Greggs share worth has grown 734% because the flip of the century, even after the autumn of current years. That compares very effectively to the 245% development within the FTSE 250 index (of which Greggs is a member) over the identical interval.

The present price-to-earnings (P/E) ratio of 12 appears to be like low cost to me. However doubling the share worth would imply a P/E ratio of 24. That strikes me as unjustifiably excessive given the corporate’s inconsistent current efficiency.

Might earnings rise? Sure, however value pressures and tightening shopper spending put a restrict on earnings development, in my opinion.

So, over the medium time period, I do suppose the Greggs share worth might rise – however I don’t count on it to double.