Could the Greggs share price double in 5 years?

Over the previous 12 months, Greggs (LSE: GRG) has been removed from a tasty inventory market performer. The Greggs share worth has tumbled by 23% in simply 12 months.

It has fallen 51% for the reason that finish of 2021. However I’ve been shopping for the share, as a result of I reckon it’s undervalued and will get better strongly in coming years.

Actually, I feel it may doubtlessly double in worth over the approaching 5 years.

Why Greggs has tumbled

Earlier than getting on to the grounds for my optimism, what has gone so badly incorrect at Greggs?

Understanding that issues. For the Greggs share worth to rise strongly, I reckon the corporate might want to present stable progress on all or a few of the points which have been regarding the Metropolis.

With some 33,000 workers, rising Nationwide Insurance coverage and wage prices are a priority for the corporate’s backside line.

Misjudgement over the product vary in the summertime led to a revenue warning. That has damage confidence in administration and in addition raised the query of how related for its clients Greggs’ product providing is. These considerations have been exacerbated by the rising use of weight-loss medication.

That feeds into wider considerations about whether or not Greggs is beginning to attain the bounds of its development potential. With hundreds of outlets already, gross sales development is being pushed by new store openings greater than same-store gross sales enhancements.

However there may be solely a lot extra white area for brand spanking new retailers earlier than Greggs reaches saturation level within the UK market.

I nonetheless see so much to love right here

Nonetheless, whereas I do see a few of these dangers as huge ones, I feel the larger image right here stays a optimistic one.

Greggs has confirmed its enterprise mannequin over the course of many years.

It enjoys sizeable economies of scale and nationwide model consciousness.

Good worth by no means goes out of vogue, together with when the financial system is struggling and shoppers change into extra worth delicate. So I feel the enterprise has ongoing potential to do properly.

Development can deliver efficiencies, serving to to spice up earnings. In the meantime, Greggs’ worth proposition and confirmed advertising and marketing prowess may assist gross sales develop, as they’ve prior to now.

The prevailing store property additionally presents sizeable development alternatives.

Greggs has traditionally been seen as a lunch or breakfast vacation spot, however extending its night providing to supply individuals handy dinner choices could possibly be an enormous winner within the coming years I reckon.

May the worth soar from right here?

In the intervening time, Greggs sells on a price-to-earnings (P/E) ratio of 12.

If it may possibly get into robust development mode once more, I reckon it may justify a P/E ratio within the excessive teenagers. That would imply a Greggs share worth 50% or extra larger than right this moment.

But when earnings per share additionally develop sufficient, such a P/E ratio may imply the share worth is definitely double its present stage.

Shops are presently rising gross sales, albeit pretty modestly. New store openings will assist. Alternatives like increasing the night enterprise may additionally enhance earnings. On prime of that, price efficiencies reminiscent of centralising extra manufacturing may assist enhance profitability.

With the dangers I discussed above, the Greggs share worth would possibly even fall from right here.

But when the corporate executes its plans properly, in years to come back I see a reputable case for it doubling. In the meantime, it yields 4.2%.