The Motley Fool

Greggs shares: why I’m still positive despite its recent loss

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.

Woman calculating figures next to a laptop
Image source: Getty Images.

Greggs (LSE:GRG) as a business may not be as exciting as Tesla or Amazon in what it does. It also doesn’t offer high volatility like we’ve seen recently with Rolls-Royce or Cineworld shares. But at the same time, Greggs shares are up almost 50% over the past year. So even despite the recent loss posted for 2020, I think it’s a stock that deserves attention, and one I’m looking to buy.

Looking past the losses

First up let’s deal with the negative 2020 results. After posting a profit in 2019 of £108.3m, 2020 accounts showed a loss of £13.7m. Full-year sales fell by over 30%, mostly due to store closures linked to the pandemic. Although the business has been able to reopen most stores under a controlled environment with reduced hours, the impact has still been clearly felt.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Personally, I don’t see the loss as a negative for Greggs shares as it’s not about company-specific steps that Greggs has taken. In fact, I think the business has managed the pandemic as best it could. It also focused on generating a positive cash position by the end of the year (which it did) and secured additional funding of £100m should it be needed.

It’s clear management agrees with me on this point. Instead of licking its wounds, the board is continuing to pursue a growth strategy. In fact, despite having to close some stores, Greggs opened 28 stores (net) during 2020. It’s planning on opening 150 during 2021. 

A bright future for Greggs shares?

Another reason I’m positive on Greggs shares is because of the sector it operates in. The bakery/food-to-go retailer is a staple of the high street and one I don’t think will see a significant demand drop (under normal market conditions). The goods are reasonably priced, and appeal to a wide range of consumers. This broad client base will likely maintain demand despite the peaks and troughs of the UK economy. I’d therefore mark Greggs shares in the defensive stock category.

I’m glad to see it looking to increase its grip on the market by different initiatives. These include its range within supermarkets, and taking advantage of home deliveries. The willingness to expand into these new channels gives me optimism that the business will stay abreast of opportunities. In turn, this should be positive for Greggs shares.

The situation does look rosy, but there are always risks to consider. One I think the business needs to be aware of is the goal of store expansion. The vision is to get to 3,000 stores, with it currently sitting just above 2,000. But just opening stores for the goal of ticking the box could be damaging for Greggs. I’ve seen other businesses expand too quickly via physical locations, only to have to close them down. It’s better to take time to evaluate the benefit of a new store and profitability first.

And of course, we also have to take into account any changes in consumer behaviour with more people working from home post-pandemic.

Overall though, I think Greggs shares have a bright future. If the company remains focused on developing new channels and is mindful of not expanding too quickly, profitability should rise.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon and Tesla and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.