The Greggs share price crashes again. Is this the contrarian opportunity of a lifetime?

The Greggs plc (LON:GRG) share price tumbles in early trading, but this Fool still thinks the shares could be a great pick for buy-and-hold investors.

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The share price of sausage roll seller and FTSE 250 member Greggs (LSE: GRG) was on the back foot yet again in early trading this morning. That’s despite the company issuing what I see as a far-from-horrific update on trading over its third quarter.

Should contrarians investors regard this as a once-in-a-lifetime chance to acquire stock in a great company on the cheap? As a holder of Greggs shares, I’m clearly biased. So let’s take a closer look at what the company had to say first.

Sales recovery

Today, Greggs reported that activity at its company-managed shops had increased this month after what had been a difficult August.

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Like-for-like sales in the four weeks to 26 September in company-managed sites averaged 76.1% of the figure hit in 2019. Positively, this is better than the 71.2% achieved when you factor in the additional eight weeks since shops reopened at the beginning of July. 

While these numbers are unlikely to make investors salivate, the food-on-the-go retailer was quick to point out the challenges it has faced. These included the inability to join the hugely popular ‘Eat Out to Help Out’ scheme. An exceptionally warm August wasn’t ideal for business either. After all, who really craves a warm pasty in high temperatures?

On a more positive note, Greggs said it had now reopened customer seating in 100 of its shops. Having focused on selling its most popular treats in the early post-lockdown period, it was also bringing back more of its product range as its manufacturing sites reopen.  

Another interesting development is management’s decision to resume its new store pipeline. As a result of having “greater clarity on activity levels,” the FTSE 250 member now expects to unveil a net 20 shops this year. So far in 2020, Greggs has closed 49 shops and opened 38. This leaves it with a grand total of 2,039 sites.

Contrarian buy?

Back in July, I mentioned getting ready to increase my stake in the baker. Fortunately, my reluctance to pull the trigger just yet proved the correct move. The Greggs share price has fallen another 20% since (including today’s decline). As things stand, it’s now pretty much halved since the beginning of 2020. 

There’s no guarantee things won’t get worse. As the company itself commented today, the future “remains uncertainin light of the rising coronavirus infection rate and the potential for its supply chain to be impacted again. Naturally, news of another national lockdown won’t go down well with investors.

However, I think there are reasons to be optimistic. The fact that the firm’s Delivery and Click & Collect options are now available nationally should help to mitigate any further damage. The decision to open new sites “predominantly in locations accessed by car” also feels prudent.

Moreover, Greggs doesn’t appear to be in financial distress. The company returned to a net cash position in September (albeit with help from the Covid Corporate Financing Facility). The plan to consult employees and unions over working fewer hours should all help keep the lights on. 

Greggs is undoubtedly in a sticky spot. As a patient buy-and-hold investor however, I do regard the shares as a buy. This conviction grows stronger as the market’s expectations reduce.

If you fancy getting involved, my only suggestion is to ensure that your portfolio is already nicely diversified.

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The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

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Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

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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.

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