Down 37% despite hitting £2bn+ in sales, does this FTSE 250 firm look an unmissable buy to me?

FTSE 250 fast-food retailer Greggs (LSE: GRG) handed the milestone of £2bn in gross sales in 2024.

Apart from this 11.3% year-on-year gross sales enhance (to exactly £2.014bn), its 9 January This autumn outcomes noticed a file 226 new outlets opened. One other 140-150 internet new retailer openings are deliberate for 2025 so as to add to the overall of two,618 presently buying and selling.

The purveyor of a number of of the UK’s most moreish culinary treats, in my view, added that provide chain capability growth is on monitor. This helps these ongoing plans for progress.

A threat to those is intense competitors within the meals retail sector.

That stated, analysts forecast Greggs’ earnings will develop by 4.5% annually to the tip of 2027. And it’s finally these that drive a agency’s share value and dividend increased.

So why are the shares down?

The inventory fell 15% after the This autumn figures as they missed forecasts for a 2024 year-on-year gross sales rise of 12.2%.

As a former funding financial institution dealer, I perceive that a part of the share value displays such forecasts. Nonetheless, my method as a non-public investor over a few years has been to take a long-term view.

In my expertise, the longer an funding is held, the higher the prospect it has to recuperate from short-term market shocks.

Consequently, once I take a look at Greggs’ efficiency numbers I believe there’s a cut price available.

Are the shares now considerably undervalued?

The primary a part of my evaluation of Greggs’ pricing is to match its key valuations to these of its rivals.

On the price-to-earnings ratio, the shares presently commerce at 16.5 in opposition to a peer group common of 20.2. This includes J D Wetherspoon at 14.7, Whitbread at 21.4, and McDonald’s at 24.4. So, it seems very undervalued on that foundation.

I believe it apposite to notice right here that Greggs overtook McDonald’s because the UK’s prime takeaway for breakfast in 2023. And it retains that primary place.

Greggs additionally seems very undervalued on the important thing price-to-sales ratio, buying and selling at 1.2 in comparison with a competitor common of three.3.

Nonetheless, on the price-to-sales ratio, Greggs seems barely overvalued at 4.6 in opposition to its 3.8 peer common.

To unravel its valuation, I used the second a part of my pricing evaluation methodology. This includes analyzing the place a inventory must be, based mostly on its future money circulate forecasts.

The ensuing discounted money circulate evaluation exhibits Greggs’ shares are technically 62% undervalued at their current £20.47.

So a good worth for them is £53.87, though market vagaries would possibly push them decrease or increased.

Will I purchase the inventory?

I’m on the later stage of my funding cycle, aged over 50 now. Which means that the size of my market view has contracted to round 10 years from the earlier 40.

My focus now’s on shares that can generate for me a really excessive passive revenue from dividends.

Analysts forecast Greggs’ yield might be 3.2% in 2025 and three.9% in 2026. By comparability, the common yield of the FTSE 250 is presently 3.3%.

Nonetheless, the common yield of my passive revenue shares is sort of 9%. So, Greggs is just not an unmissable purchase for me.

That stated, if I had been within the early phases of my funding cycle, I might purchase it for its progress potential and main undervaluation.