Are Greggs shares too cheap to ignore?

FTSE 250 (INDEXFTSE:MCX) stock Greggs plc (LON: GRG) has been hit hard by the coronavirus pandemic. Paul Summers is getting ready to buy again.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

For a few years, baker Greggs (LSE: GRG) has been the toast of the high street. Savvy marketing combined with low-ticket treats had people queueing outside the FTSE 250 member’s stores. There were even ‘midnight openings’ for new products

From an investment perspective, Greggs has been even sweeter. Go back to 2013 and the stock changed hands for around 400p. Fast forward to this January and the very same shares were trading at 2,550p a pop. Who needs a high-flying electric car company when you can make a very healthy profit from the humble sausage roll? 

Greggs vs Covid-19

Since then, of course, the world has been turned upside down. The arrival of the coronavirus on UK shores resulted in people being unable to get their Greggs fix. It may have been bucking the trend of listed companies on the high street, but that mattered little when said high street was shut for business. 

Should you invest £1,000 in Greggs Plc right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Greggs Plc made the list?

See the 6 stocks

Thankfully, we now appear to be through the worst. Greggs, however, is staying cautious, almost totally suspending its new shop opening programme and accelerating its delivery and click & collect services. It’s also been negotiating rent reductions with landlords.

However, it would seem that investors aren’t inclined to wait around for normal business to resume. At Friday’s close, Greggs shares fetched 1,481p — 42% off their all-time high.

The question is whether this price is fair or even a downright steal. For now, I’m inclined to go with the former.

Baked in?

I don’t think there can be any doubt that Greggs possesses many of the hallmarks of a great business. It generates consistently excellent returns on capital (low-to-mid 20%), has a strong brand, a loyal following and solid finances. Margins are also higher than you might expect — around 10%. 

All that said, there are reasons to think the shares could still have further to fall. For one, it’s looking like the UK economy will take longer to revive than first thought.

While recent figures show retail sales are improving, it would seem that many of us are struggling to break the new habit of buying more online and less from physical shops. In addition to this, a lot of office workers are still to return to their desks and the number of people filtering through train stations and airports is clearly still less than it was. All of these things impact on early morning and lunchtime sales at Greggs.

Tomorrow’s interim results will provide an inkling on how the company is faring post-lockdown, but I’m not expecting anything remotely pretty in the numbers just yet. After all, Greggs already stated in June that it expects sales will be “lower than normal for some time” and that it will be limiting its product range to best-sellers as a result.

Contrarian bet

Nothing can be guaranteed when it comes to stocks and being an existing holder of Greggs no doubt makes me biased. However, I struggle to imagine why it won’t bounce back even stronger once the coronavirus dust settles. For this reason, I’m likely to increase my (still modest) holding if the share price continues heading downwards in the near term. 

Successful investing involves distinguishing between companies experiencing short-term blips and those suffering game-changing problems. Greggs, I believe, is surely in the first category.

I’m getting ready to tuck in.

But there may be an even bigger investment opportunity that’s caught my eye:

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers owns shares of Greggs. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Here’s the Tesco share price forecast for the next 12 months!

Tesco's valuation has dropped to multi-year lows after recent share price weakness. Is now the time to consider buying the…

Read more »

Illustration of flames over a black background
Investing Articles

Just released: March’s higher-risk, high-reward stock recommendation [PREMIUM PICKS]

Fire ideas will tend to be more adventurous and are designed for investors who can stomach a bit more volatility.

Read more »

Investing Articles

I asked ChatGPT for the best FTSE 100 investment trust to buy… here’s what it said

There aren't many FTSE 100-listed investment trusts and according to ChatGPT there’s only one winner. Dr James Fox explores.

Read more »

Investing Articles

How much should investors put in an ISA to achieve the average UK wage in passive income?

Millions of Britons use the Stocks and Shares ISA as a vehicle to build wealth, but a successful investor can…

Read more »

Investing Articles

2 cheap FTSE dividend stocks to consider buying for an ISA

The deadline for using up the Stocks and Shares ISA allowance is almost upon us. Paul Summers has spotted two…

Read more »

Investing Articles

£20k in a Stocks and Shares ISA? Here’s how an investor could target £1,342 in passive income each month

Christopher Ruane explains how a long-term approach to investing a Stocks and Shares ISA could generate a four-figure monthly income.

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

Millions are missing out on ISA account benefits! Here’s what I’m doing now

Swathes of people are missing the chance to supercharge their returns with a Stocks and Shares or Lifetime ISA account.…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Here’s my plan to survive and thrive in a stock market correction

A falling stock market can be an opportunity, but investors need a plan. Stephen Wright shares his strategy for taking…

Read more »