Is the Greggs share price now a screaming buy for me after falling 10% this month?

Harvey Jones watched the Greggs share price climb and climb, but decided it was too expensive for him. Should he buy the FTSE 250 stock now it’s fallen?

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I’ve been watching the Greggs (LSE: GRG) share price for months, wondering whether this was a good time to buy it.

Britain’s favourite bakery chain has turned itself into a national treasure, supplying traditional fayre like sausage rolls and steak bakes, without feeling stodgy or old-fashioned itself. Unlike so many retailers, the cost-of-living crisis did it a favour, as cash-strapped shoppers saw a trip to Greggs as an affordable treat.

Greggs has been marketed brilliantly, from its clothing range (with Primark) to its legendary vegan sausage rolls. I’m not sure how many it actually sold, but everybody was talking about them.

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FTSE 250 growth star

Management’s aiming to lift total store numbers from 2,500 to 3,500 and is looking beyond the high street to stations, airports, supermarkets and retail parks. It’s also testing evening openings.

At the same time, it’s swift to close underperforming outlets, which keeps margins high. Given that I’m such a fan, why didn’t I sink my teeth into its shares?

One of the first metrics I look at when deciding whether to buy a stock is the price-to-earnings ratio, and that was always high at more than 20 times. The price-to-sales ratio, which compares a company’s share price to its revenues, was also pricey, on the high side at 1.6, but not dangerously so.

Especially since sales have been growing fast, jumping almost 20%, from £1.513m in 2022 to £1.810m in 2023.

The board’s been willing to reward loyal shareholders too. A trailing dividend yield of 2.15% is modest but management’s progressive. It hiked the dividend by 3.5% to 59p in 2022 and then by 5% to 62p in 2023.

The Greggs share price has climbed 20.32% over 12 months and 62.84% over five years, and I felt it I was coming to the party too late.

Created with Highcharts 11.4.3Greggs Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Given all the excitement, it was vulnerable to shocks, and it got one on 1 October when it announced Q3 sales had slowed. The share price has plunged from 3,214p to 2,884p today, a drop of 10.26%.

Growth and dividend income

The slowdown was hardly a calamity. Managed like-for-like sales rose 5% but that followed 7.4% growth in the first half. High expectations were still confounded.

Greggs is still growing and still innovating, with an All-Day Breakfast Baguette, Mexican Bean & Spicy Cheese Flatbread and Pumpkin Spice Doughnuts the latest additions to its range.

But I still can’t bring myself to buy its shares at today’s lower price. There’s still a lot of growth priced into today’s valuation of 22.93 times earnings and there are risks. Can it maintain its cult status, or will it succumb to healthier eating trends (if they ever truly arrive)?

Brokers are more optimistic. The 11 analysts offering one-year price forecasts have set a median target of 3,332p, up 15.7% from today. There’s a wide range of views, though, with a maximum estimate of 4,040p and a minimum of 2,600p.

However, I won’t be taking advantage of today’s dip. It’s still pricey and I’m worried we’ve passed peak Greggs.

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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.

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. 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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