When it comes to valuing stocks, there’s no single formula to use. However, one initial sign of potential value comes from share price movements. So when I spotted a FTSE stock that had been heavily beaten up over the past year, it made me want to take a closer look. Here’s what I discovered.
Recent problems
I’m referring to Greggs (LSE:GRG), the well-known UK bakery chain, famous for its sausage rolls, sandwiches and sweet treats. Over the past year, the stock’s down just under 50%. Based on my research, there are several obvious and some less obvious reasons for this move.
Concerns have grown that Greggs’ aggressive expansion strategy may have outpaced demand. With over 2,600 shops now operating and plans for more than 100 new openings across 2025, investors are starting to question whether the chain is nearing saturation point. Evidence of this can be seen from the H1 2025 report. Like-for-like growth in company-managed stores slowed to just 2.6%, well below levels seen over the past few years.
Another major culprit behind the weaker results was extreme weather (classic England!). A blistering June heatwave sharply reduced footfall, as customers shied away from pastries in favour of cold drinks. Even though you might think this isn’t a huge deal, it prompted Greggs to revise its full-year profit expectations downward.
The impact of weather isn’t just an isolated event. Earlier in the year, volatile winter weather (including heavy snow in January) also disrupted trading, adding to the revenue drag.
Finally, the stock’s been negatively impacted by higher operating costs. This can be blamed on various factors, including surging food prices, wage inflation, and employer National Insurance hikes.
Why I think it’s good value
Let’s start with a classic valuation metric, the price-to-earnings ratio. In the past, this has been well above average. Yet, in part due to the share price fall, it’s now at 10.63. This puts it pretty close to my benchmark figure of 10, which is where I start to consider stocks as being good value. Therefore, although it’s not screamingly undervalued on this one metric alone, it certainly suggests the stock isn’t overvalued.
While near-term results have been hampered by extreme weather and cost inflation, I firmly feel these are short-lived headwinds. They aren’t structural issues. Greggs still boasts strong brand equity, a loyal customer base, and a competitive advantage in value-for-money food-to-go offerings. What it’s doing within its power is good.
Even if physical expansion slows, we shouldn’t forget the recent growth in franchise partnerships and delivery platforms. In my view, this opens up a much larger target market going forward.
Finally, the company has a strong balance sheet, with low debt and good cash flow. It’s not a stock that’s beaten down due to large losses or high debt.
Although I can’t say for sure if this is the best value stock in the entire index, I do think it’s a strong contender. It’s a stock that I think is worthy of consideration by investors at the moment.
