The pandemic was a strange time for Greggs (LSE: GRG) shares. In 2020, the share price dropped from a January high of nearly £24 to a September low of £11. The threat of extended lockdowns and shuttered bakeries halved the firm’s value for a total loss of nearly £2bn in market capitalisation.
If I’d spotted an opportunity with these battered shares, what might I have made from it?
Up triple
The recovery didn’t take long. A vaccine arrived the next spring and drew the curtains on the worst of the Covid-related troubles.
The share price, probably below its true value, went on a tear. Today I could buy in for around £32, up nearly triple from that virus-fuelled low. A £10,000 stake at that time would have turned into £27,675 today. Not bad.
But there’s more to the story than simply shaking off a bug. Competitors haven’t prospered nearly as much over the same time span. Domino’s shares are down since the pandemic. Owner of Beefeater and Brewer’s Fayre Whitbread shares are up but only by 31%. Even global fast food kingpin McDonald’s is up just 32%.
Greggs seems to have uniquely prospered. Why is this? And are the shares a must-add to any growth-hungry portfolio?
To buy or not to buy?
Cheap prices are one reason. The shares lifted as pandemic threats were clearing, but it was also as a cost-of-living crisis emerged. British belts started to tighten and British wallets opened for sausage rolls and steak bakes that could, back then at least, still be bought for a pound coin.
Even now, Greggs is one of the new places on the high street you could walk into with a fiver and come out with a hot meal.
Tasty prices have been paired with seriously shrewd management too. An expansion plan is under way and the latest data shows the firm is on track for 140-160 new stores in the calendar year. Growth in existing stores has been helped by expanded opening hours, pushed back to 8pm in some stores.
Management hasn’t even limited its ideas to food, teaming up to do a Primark collab selling Greggs-branded merch. I never thought I’d see the day when young ‘uns dress up in clothes with the name of a high street bakery on, but here we are.
With the firm firing on all cylinders, the question really is one of valuation. Greggs trades at 24 times forward earnings which seems very expensive by UK standards (the FTSE100 average is close to 12 times at present). However restaurants are unlikely to go away and Greggs seems to be on a better upward trajectory than any other. With a somewhat cheaper entry point I think this would be a stock I’d buy.
