Over the long term, Greggs (LSE: GRG) has been a decent stock market performer. In the past five years, Greggs shares have moved up 18%. Over 10 years, the share price is up 69%.
More recently, though, things have looked far less rosy – something I see as an opportunity.
Poor one-year performance
Take the past year as an example. During that time, Greggs shares have lost 31% of their value.
So, someone who invested £10,000 in the bakery chain a year ago would now be nursing a paper loss of around £3,100. Ouch.
Now, there would have been dividends along the way too. The current yield is 3.6%, although the higher share price a year ago means that someone who invested then would be earning around 2.4%.
That would still have added up to approximately £240 over the course of year. That does not much help the overall performance, though, given that £3,100 paper loss.
What has gone wrong? City worries about weak growth combined with higher costs due to increased staff wage bills have hurt investors’ confidence in the stock.
Business is doing just fine
Those fears have some grounding in reality, I reckon. They are risks. But I think the worry has been overdone.
Last month, the company announced that sales grew in the first 20 weeks of the year.
Not only did total sales grow, but even stripping out new shop openings and just looking at the like-for-like sales, there was growth of 2.9%. That sounds modest but does not indicate a company in poor health to me.
The sausage roll maker has not changed its expectation for cost inflation and kept its full-year outlook the same as before.
In other words, things sound like they are ticking over pretty much fine.
I see a buying opportunity!
Combined with ambitious shop opening plans, that could mean that Greggs has significant medium- and long-term growth opportunities ahead of it.
It has a proven business model, strong brand, and an ability to create consumer buzz about what are essentially mundane products. That gives it pricing power.
However, while I am upbeat about the outlook, the price fall in Greggs shares means that they now sell for 13 times earnings. That strikes me as cheap for a company like this one, that I think could be even more profitable in future than it is now.
So I bought some Greggs shares several months ago. Last week, I then bought some more. I decided to act, not wait, as I do not expect the current price to be around in the long term. This is because I think the share looks undervalued.
I am glad I did not invest a year ago, as I would now be nursing a large paper loss. At today’s price, though, I reckon Greggs shares look like good value, so I was happy to invest.
