Down 37% despite hitting £2bn+ in sales, does this FTSE 250 firm look an unmissable buy to me?

This FTSE 250 fast-food retailer just hit the £2bn sales level, but its shares have tumbled. So what’s behind it and is there a massive bargain to be had?

| More on:
Arrow symbol glowing amid black arrow symbols on black background.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 250 fast-food retailer Greggs (LSE: GRG) passed the milestone of £2bn in sales in 2024.

Aside from this 11.3% year-on-year sales increase (to precisely £2.014bn), its 9 January Q4 results saw a record 226 new shops opened. Another 140-150 net new store openings are planned for 2025 to add to the total of 2,618 currently trading.

The purveyor of several of the UK’s most moreish culinary treats, in my opinion, added that supply chain capacity development is on track. This supports these ongoing plans for growth.

A risk to these is intense competition in the food retail sector.

That said, analysts forecast Greggs’ earnings will grow by 4.5% each year to the end of 2027. And it is ultimately these that drive a firm’s share price and dividend higher.

So why are the shares down?

The stock fell 15% after the Q4 figures as they missed forecasts for a 2024 year-on-year sales rise of 12.2%.

As a former investment bank trader, I understand that part of the share price reflects such forecasts. However, my approach as a private investor over many years has been to take a long-term view.

In my experience, the longer an investment is held, the greater the chance it has to recover from short-term market shocks.

Consequently, when I look at Greggs’ performance numbers I think there is a bargain to be had.

Are the shares now significantly undervalued?

The first part of my assessment of Greggs’ pricing is to compare its key valuations to those of its competitors.

On the price-to-earnings ratio, the shares currently trade at 16.5 against a peer group average of 20.2. This comprises J D Wetherspoon at 14.7, Whitbread at 21.4, and McDonald’s at 24.4. So, it looks very undervalued on that basis.

I think it apposite to note here that Greggs overtook McDonald’s as the UK’s top takeaway for breakfast in 2023. And it retains that number one position.

Greggs also looks very undervalued on the key price-to-sales ratio, trading at 1.2 compared to a competitor average of 3.3.

However, on the price-to-sales ratio, Greggs looks slightly overvalued at 4.6 against its 3.8 peer average.

To get to the bottom of its valuation, I used the second part of my pricing assessment methodology. This involves examining where a stock should be, based on its future cash flow forecasts.

The resulting discounted cash flow analysis shows Greggs’ shares are technically 62% undervalued at their present £20.47.

So a fair value for them is £53.87, although market vagaries might push them lower or higher.

Will I buy the stock?

I am at the later stage of my investment cycle, aged over 50 now. This means that the length of my market view has contracted to around 10 years from the previous 40.

My focus now is on shares that will generate for me a very high passive income from dividends.

Analysts forecast Greggs’ yield will be 3.2% in 2025 and 3.9% in 2026. By comparison, the average yield of the FTSE 250 is presently 3.3%.

However, the average yield of my passive income stocks is nearly 9%. So, Greggs is not an unmissable buy for me.

That said, if I were in the early stages of my investment cycle, I would buy it for its growth potential and major undervaluation.

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.

Simon Watkins 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.

More on Investing Articles

Young Caucasian woman with pink her studying from her laptop screen
Investing Articles

Time to buy Nvidia shares before fresh all-time highs?

Nvidia shares began 2025 at an all-time high before a big drop in the last week or two. Our writer…

Read more »

Investing Articles

A top FTSE 100 share to consider for a Stocks and Shares ISA starter portfolio!

While not without risk, a lump sum in this FTSE 100 trust could prove a great way for Stocks and…

Read more »

Runner standing at the starting point with 2025 year for starting in new year 2025 to achieve business planing and success concept.
Investing Articles

I asked ChatGPT to name the best 5 UK shares to build wealth over 50 – and here they are!

Harvey Jones is looking to build a balanced portfolio of UK shares to fund his final years, and asked ChatGPT…

Read more »

Investing Articles

£10k invested in Scottish Mortgage shares after the DeepSeek crash is now worth…

Harvey Jones thought his Scottish Mortgage shares were heading for a bumpy ride when DeepSeek emerged last month. Then he…

Read more »

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

1 ex-penny stock up nearly 400% in my Stocks and Shares ISA! 

This writer is starting to take notice of a small-cap stock that is 'up' significantly in his ISA portfolio over…

Read more »

Investing Articles

The FTSE 100 index hits new highs! But will Legal & General shares outperform it in 2025?

Legal & General's share price has rocketed almost 8% so far in 2025. Can it continue to outstrip the surging…

Read more »

Investing Articles

Up another 8% in a week! So what’s stopping me from buying IAG shares? 

Harvey Jones is desperate to add high-flying IAG shares to his portfolio before they climb even higher but there's a…

Read more »

Happy couple showing relief at news
Investing Articles

The Bank of England’s slashed its growth forecast but the FTSE 100 doesn’t seem to care!

On the day the UK’s central bank halved its forecast for growth in 2025, the FTSE 100 reached a record…

Read more »