Forget your usual New Year’s resolutions like getting more exercise, reading more books, or finally sorting the garage out. They’re important, but right now my mind is on something else: buying more dirt-cheap Greggs (LSE:GRG) shares for my Self-Invested Personal Pension (SIPP).
Following heavy share price weakness, I opened a position in the FTSE 250 baker back in November. And it still looks dirt cheap to me, making me think that I should snap up more of its shares.
Historically cheap
At £28.02 per share, the Greggs share price currently commands a forward price-to-earnings (P/E) ratio of 19.4 times.
That’s a good distance above the FTSE 250 average of 14.2 times. However, it’s well below the five-year average of 23.4 times for Greggs shares (excluding 2020, when the pandemic battered earnings).
I’d been considering buying Greggs shares for some time. Early October’s price drop — which was prompted by a chilly market reaction to latest financials — encouraged me to finally press the Buy button.
Solid Q3 numbers
Third-quarter numbers on 1 October showed like-for-like sales growth (from Greggs’ company-owned stores) of 5% between July and September.
On the downside, this was lower than the 7.4% rise in the first half of 2024. However, third-quarter numbers were still solid enough in my view, considering the strong comparables of the year before. During the three months to September 2023, corresponding like-for-like sales rocketed 14.2% year on year.
Furthermore, the baker said that September was “the strongest month of the quarter“, suggesting that sales were picking up steam again.
With Greggs also cutting its cost inflation estimates, I find its share price drop hard to fathom. The business said that full-year inflation would likely be “towards the lower end of the 4-5% range previously communicated“.
Excellent returns
Since 2014, Greggs shares have delivered an average annual return of around 19%. This includes capital gains alongside dividend income.
That’s far better than what the FTSE 100 and FTSE 250 have delivered in that time. Total returns from both these UK indexes are around 6%.
And I expect Greggs to keep serving up market-beating returns. One reason is that it plans to continue its successful store expansion programme.
Up from around 1,650 shops just 10 years ago, the company had 2,559 on its books as of the last count in September. And it is building capacity to raise the number to 3,500 over the next few years, which will include improving its footprint in potentially lucrative travel locations like train stations.
I’m also liking the baker’s growing focus on franchise outlets, helping it keep control on costs.
I expect Greggs’ share price to resume its strong momentum sooner rather than later. In fact, I think a rebound could happen as soon as next week (9 January) when the baker releases fourth-quarter trading numbers.
Market competition, cost inflation, and potential execution problems as it expands all pose threats to future returns. But on balance, I think Greggs could be the best growth stock for me to buy in early 2025.
