The Greggs share price is rising: should I buy now?

The Greggs share price is up about 60% in the past six months. Will the stock continue to rise? Here’s my take about this company.

| 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.

sdf

The Greggs (LSE: GRG) share price rose about 60% in the past six months. However, the stock is around 10% lower than its pre-Covid-19 levels. The company’s efficient handling during the pandemic has increased investor confidence in the past few months. 

I would like to understand the pros and cons of investing in this company.

The bull case for Greggs shares

The company recently reported an annual loss of £13m. It is its first annual loss since it was listed on the London Stock Exchange in 1984. This is a remarkable feat for any company. The losses this year were expected due to the disruptions caused by Covid-19. The improving results in the second half of 2020 show some strong momentum for the future.

Greggs products are much loved by its customers. Its breakfast rolls, sandwiches, and pastries have all got good loyal customers. It has been able to adapt very well to the changing needs of the people. It has also partnered with Just Eat for deliveries. The initial results of this partnership are encouraging. The click and collect service will also continue to be popular in the future.

The company’s strategic plan is progressing well. By the year 2024, it plans to have less than 50% of its business in the high street. Currently, it is 56%, down from 80% in the year 2012. The advantage of having fewer stores in the high street is, it is cheaper to operate and also, it can cater better to the residential areas. It also plans to add an evening food menu in the future.

The bear case for Greggs share price

The company has been able to start operations on a limited basis. Looking forward, we could expect full operations in June. However, there is no guarantee that the business will return to pre-Covid-19 levels. There are a lot of people who could shift to working-from-home. So, the company will miss this business. Also, a lot of people have got accustomed to home food during the lockdown.

Next, the company has plans to open 100 new stores in 2021. It has a capital expenditure of about £70m. However, lower growth due to the Covid-19 could put pressure on the company’s balance sheet. Also, in the longer term, the company has plans to expand internationally. The company in the past had to close its small operations in Belgium, due to losses. 

Looking into the valuation, the company reported an earnings loss per share of 12.9p. So, it’s difficult to look into the current price-to-earnings (P/E) ratio, the 2021 analyst’s earnings per share estimate is 52p, which would give a forward P/E ratio of 43. In my opinion, the shares are not cheap. Also, a point to remember, the actual company’s performance might differ from the analysts’ estimates.

Final view

Greggs has good products, with an excellent business model. It has reduced its operating expenses during the pandemic. However, I am not a buyer of the stock at the current Greggs share price, since I believe the upside is not much at the current valuation. 


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.

Royston Roche has no position in any of the shares mentioned. 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

Businessman using pen drawing line for increasing arrow from 2024 to 2025
Investing Articles

After the FTSE 100 broke 9,000 points, does the UK market look overvalued?

The FTSE 100 went past 9,000 points this week but Mark Hartley says there are still bargains out there and…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Nvidia stock hit an all-time high this week. But could it be a bargain, even now?

After the Nvidia stock hit an all-time high this week, might it still be an attractive opportunity for our writer's…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

As the FTSE 100 hits an all-time high, I’m following Warren Buffett’s advice!

Billionaire investor Warren Buffett is a font of stock market wisdom. Our writer reflects on his approach, as the FTSE…

Read more »

One English pound placed on a graph to represent an economic down turn
Investing Articles

The FTSE 100 reached an all-time high this week. Is it too late to invest?

The FTSE 100 hit a new all-time high level over the past few days. Our writer explains why he thinks…

Read more »

Close-up image depicting a woman in her 70s taking British bank notes from her colourful leather wallet.
Investing Articles

Here’s how £9,000 in savings could be used to target £343 a month of passive income

Christopher Ruane sets out a passive income plan that he reckons could help someone make sizeable sums over time without…

Read more »

ISA Individual Savings Account
Investing Articles

How to build a Stocks and Shares ISA with a 6% dividend yield

It’s easy to build an investment portfolio with a high dividend yield today. But investors need to manage risk carefully,…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How risky is switching from cash savings to a Stocks and Shares ISA?

The UK government is making moves to encourage cash savers to consider investing via Stocks and Shares ISAs. But what…

Read more »

Friends and sisters exploring the outdoors together in Cornwall. They are standing with their arms around each other at the coast.
Investing Articles

4,985 shares of this FTSE dividend star pay an income equal to the State Pension!

Zaven Boyrazian calculates how many shares investors would have to buy to generate enough income to match the UK State…

Read more »