Should I buy Greggs shares after the Uber Eats link-up?

This Fool wonders whether Greggs shares finally warrant a place in his portfolio after the Newcastle-based baker delivered another solid quarter.

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Greggs (LSE: GRG) shares slipped 2.5% to 2,416p this morning (3 October). This followed the FTSE 250 firm’s third-quarter trading update, where we learned of new shop openings and the rollout of a delivery partnership with Uber Eats.

After this slight pullback, the stock is up 40% in one year and 134% over five years. Across a decade, the share price is up a very tasty 450% (excluding dividends).

Should I invest in Greggs shares after this quarterly update? Let’s find out.

The baker keeps on delivering

For the 13 weeks to the end of September, total sales at Greggs jumped 20.8%, while like-for-like sales in its company-managed (non-franchised) shops rose 14.2%. Driving this was strong growth in evening trade (sales after 4pm), which represented 8.8% of company-managed store sales during the quarter.

There are now 2,410 bakeries, with a further 82 net new locations added this year and plans for more by the start of 2024. Capital expenditure is expected to be around £200m for the year, supported by a strong balance sheet.

Meanwhile, more customers are scanning the Greggs app and I can now get its sausage rolls delivered by Uber Eats as well as Just Eat

Further good news is that cost inflation eased in areas such as dairy and vegetable oils, while energy prices were less volatile than last year. However, there was ongoing pressure in staff wages.

A high bar

Given this progress, why has the share price fallen?

Well, there was no raised guidance for the full year, which normally goes down well with investors. The firm merely maintained its full-year outlook. Surely that’s a good thing, though, during these tough times for retailers? Apparently not.

Plus, management struck a cautious tone for the fourth quarter. Uncertainty in the economy was mentioned, as was the strong fourth quarter of 2022, which might make for a tough year-on-year comparison.

Another thing that may be weighing on the stock slightly is that the company isn’t planning to raise prices before the busy Christmas period. The baker last hiked its prices in June. Perhaps the market was hoping the firm would add a few more pennies to the price of its popular Festive Bakes.

Overall, I think a very high bar has been set for Greggs, especially after an incredibly strong 12-month share price run. And there were no eye-popping updates to warrant a buying frenzy.

Should I nibble on shares?

Still, this was a very solid quarter. The firm is delivering everything I’d want as an investor. Sales are rising, new stores are popping up, and the app continues to foster and reward customer loyalty. And surely the Uber Eats partnership will drive more sales.

But what about the valuation? Well, I wouldn’t say that offers as much value as the firm’s food, with the shares trading on a forward-looking P/E ratio of about 20.

I mean, that certainly isn’t outrageous, but it’s still a premium to the wider market. And it probably leaves little room for error if there are growth hiccups along the way. That’s a risk.

That said, I do feel comfortable buying the shares for the long term. So I’ll probably be a Greggs shareholder in time for the arrival of those lovely Festive Bakes.

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.

Ben McPoland has no position in any of the shares mentioned. The Motley Fool UK has recommended Just Eat Takeaway.com and Uber Technologies. 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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