Despite some small bumps in the road, the Greggs (LSE: GRG) share price has kept on climbing this year. In fact, over the past 12 months, it has increased by almost 30% to 2,260p, from 1,758p. It’s currently trading well above pre-pandemic levels. That’s impressive given the issues it has faced of late.
Do I believe that Greggs shares can maintain their upward momentum though? Or is it too late to add it to my portfolio?
Greggs’ rising share price
Greggs is a British bakery chain that specialises in pastries and food-to-go. I’m surprised to see Greggs’ share price performing so strongly this year. The company just posted its first-ever annual loss and is showing a shocking P/E ratio of 715.
Although I believe that its share price is expensive, I can’t deny there are some positives.
2020’s £14m loss was completely pandemic-related, as evidenced by its £108m pre-tax profit in 2019. Given how devastatingly challenging the pandemic has been, things could have been a lot worse for Greggs in my opinion. Thanks to management’s decisive actions to create pop-up stores, deliver online and cut dividends (as well as hundreds of jobs), it managed to stem its cash outflow.
I think Greggs stock is also being bolstered by its strong standing as one of the UK’s leading food-to-go retailers. This status should help it bounce back as life returns to normal and the already expensive share price could rise further.
Risks to consider
However, when I ask myself if I should buy Greggs’ shares with all that in mind, it’s hard to ignore those 2020 losses. Yes, the company managed the pandemic well, but a £14m loss will certainly impact its safety net in the event of another downturn, especially when considering it plans to expand.
These plans are another point of concern for me. With 2,000 stores currently, it intends to expand to 3,000. The Greggs share price could be impacted by growing costs related to stretching itself too thin.
But the big question is whether its investment will generate the returns it wants at a time when consumers are being forced to change their habits. There’s a chance management may not have sufficiently taken into account that work-from-home practices may be here to stay. Stores in more residential areas or with accessible parking have fared better in lockdown, but city centre chains have been decimated by office closures. Fewer people returning to pre-pandemic work habits will have a long-term impact on Greggs’ previously most profitable locations.
The bottom line
Looking again at Greggs’ handling of the pandemic, I can’t praise it enough, however. Its cost-cutting and expansion into online delivery as well as pop-up locations have helped it to weather the worst of the Covid-19 storm.
Over the short term, I believe it will be a massive beneficiary of a reopened economy. I also believe that this top UK stock’s price will keep on climbing in a post-pandemic world following its innovative adaptations. And I think it will benefit from the unfortunate closure of smaller businesses, snapping up market share.
This gives me hope for its long-term future, which is why this stock is on my shortlist.
