1 FTSE 250 stock to buy and hold for a long time

This FTSE 250 stock has swung back into the black after suffering through the pandemic. Does that make it a good buy for me for the long term?

| 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.

Business development to success and FTSE 100 250 350 growth concept.

Image source: Getty Images

Food retailer Greggs (LSE: GRG) posted good news yesterday as it swung back into profit for the half year ending 3 July. I think this is one of the fastest turnarounds I have covered in recent months among stocks most affected by the coronavirus crisis. 

Back in the black

Its return to the black has been driven by an over 81% increase in revenue compared to last year. It can be argued, of course, that  last year does not offer a meaningful comparison, because of the lockdowns. But Greggs’ latest performance is also back to the levels last seen in 2019. Moreover, for July alone, its revenues slightly exceeded those in 2019.

The FTSE 250 company is also expanding its footprint across the UK. It has already opened 48 new shops in the first half of the year, and wants to increase that number to 100 by the end of 2021. It is also finding new ways of reaching customers, including through delivery services and expanding its menu to vegan options.  

Greggs share price has run up too much

Clearly, the company is thriving and there is a case for me to buy the stock. However, the Greggs share price has already run up quite a bit. It is trading at levels much higher than it was before the pandemic. I reckon this was in anticipation of better results. And indeed, its performance is good. But I am not sure if the numbers as yet are strong enough to justify the extent of the share price increase. 

Even if I look at it from a relative price perspective, it still looks pricey. The price-to-earnings (P/E) ratio, which allows a comparison across stocks, is around 32 times according to my estimates based on the latest numbers. I could justify these numbers if the stock markets were rallying. Because then they could be explained by broad market euphoria. 

That is not the case at present, however. The FTSE 100 index, for instance, has been relatively flat for the past two months. It is also still below its pre-pandemic levels. The story is similar for the FTSE 250 index, of which Greggs is a constituent. 

This means that other FTSE 100 and FTSE 250 stocks may just be far more attractive from a relative price perspective. As an investor, I would much rather allocate my funds to companies that have the potential to rise fast than those that already look highly priced. 

My takeaway

Based on this reasoning, I think that the pace of the Greggs share increase may slow down. Consider the example from yesterday, when it released its results. The Greggs share price actually fell, and in trading today, it has dipped slightly as I write. 

If it keeps up with its performance, as was evident before the pandemic, I think Greggs can still be a great stock to buy for the long term. But I am waiting for a bigger dip before buying it.

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 considered so you should consider taking independent financial advice.

Manika Premsingh 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

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

1 dividend stock with a juicy yield to boost returns!

This Fool likes the look of this dividend stock to boost his passive income stream and explains why he would…

Read more »

Happy male couple looking at a laptop screen together
Investing Articles

Here’s 1 growth stock primed for long-term growth and returns!

Jabran Khan is hunting for a growth stock to boost his holdings. Could this financial advisory business be the right…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 FTSE 250 shares I bought for extra dividends

I plundered the FTSE 250 index to find these three cheap stocks with ailing share prices. All three firms pay…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m buying cheap FTSE 100 stocks to boost my passive income!

Buying dividend stocks today could considerably improve the amount of passive income I make. Here are some FTSE 100 stocks…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Am I crazy for buying Royal Mail shares?

Royal Mail shares have collapsed by almost half in 2022. And with group profits falling and strike action under way,…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

2 recession-resistant stocks to buy right now

After the pandemic slump, we're now facing a UK recession. Many are looking for recession-resistant stocks to protect their money.

Read more »

Engineer Project Manager Talks With Scientist working on Computer
Investing Articles

This FTSE 100 stock continues to fall! Should I buy shares?

This Fool takes a closer look at a FTSE 100 quality assurance stock. As the shares continue to fall, is…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Is the Rolls-Royce share price about to surge?

The Rolls-Royce share price continues to fall as market patience wears thin. But could it be on the brink of…

Read more »