Rapid earnings growth over the last decade has seen the value of Greggs‘ (LSE:GRG) shares explode over the last decade.
Someone who invested £10,000 in the FTSE 250 baker back in mid-April 2015 would have seen the value of their shares rise to £15,999. Over the period, its share price has leapt from £11.33 to £18.15 today.
When also factoring in dividends, an investor would have made a cumulative profit of £10,157. That represents a total shareholder return of 101.6%.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
But stormclouds have gathered over Greggs more recently, and its share price has fallen sharply from 2024’s closing high of £31.84 reached in September.
Should investors today consider grabbing a slice of the sausage roll maker? Or is the company past its best-before date?
Expansion continues
Greggs’ story for most of the past decade has been one of aggressive expansion and a subsequent surge in profits. From having 1,650 stores just over 10 years ago, the business now has 2,618 (comprising 2,057 company-managed stores and 561 franchised units).
Having found the right recipe for earnings growth, the company, perhaps unsurprisingly, has no plans to backtrack. New store openings hit a yearly record in 2024, and Greggs plans to have “significantly more than 3,000 shops” in its portfolio over the longer term.
It’s investing vast sums in manufacturing and distribution to make this a reality too. In fact, the business believes two new sites in Derby and Kettering — slated to open in 2026 and 2027 respectively — will provide enough capacity for some 3,500 shops.
Encouragingly, Greggs plans to site a greater number of its new stores in high-traffic destinations too, reflecting its pivot away from the high street. More specifically, it plans to centre future expansion towards travel destinations such as airports and train stations.
The firm’s gearing up to further extend opening hours across its store estate too, to capture the lucrative evening ‘food to go’ market. Greggs also has plans to keep investing in its delivery channel following recent impressive trading. Delivery revenues grew by an impressive 30.9% in 2024, despite the tough trading environment.
27.6% rebound?
I’m hoping that these factors will help Greggs’ share bounce back following recent heavy dips. Encouragingly, the dozen analysts with ratings on the stock expect prices to rebound over the next 12 months, though forecasts aren’t uniformly bullish.
One especially enthusiastic broker things Greggs shares will surge from £18.15 today to £32.50 in the next 12 months. At the other end of the scale, another analysts reckons the baker will drop all the way back to £13.30.
The average price target however, sits at £23.16. That represents a 27.6% rise from current levels.
Are Greggs shares a buy?
On balance, I think Greggs shares are worth serious consideration following recent share price weakness. It now trades on a reasonable price-to-earnings (P/E) ratio of 13.3 times.
It’s true that trading conditions could remain challenging in the near term as consumer spending remains constrained. It also faces significant competition on the high street and elsewhere.
Reflecting these pressures, like-for-like sales growth at Greggs cooled to 5.5% in 2024 from 13.7% a year earlier. However, my long-term view of the bakery chain is undimmed. I believe Greggs’ share price will rebound sharply when broader economic conditions improve.
