I am a long-term investor and, taking the long view, Greggs (LSE: GRG) has been a solid performer. Greggs shares are up 67% in a decade – and 278% over two decades.
The past few years have been far less impressive, though.
For example, in the past six months, the Greggs share price has fallen 3%.
So somebody who invested £5k half a year ago would now be nursing a paper loss of around £150 on the shares.
That compares to a 4% gain in the value of the FTSE 250 Index (of which Greggs is a member) over that period. That would equate to a paper gain of some £200 on a £5k investment.
Is this a bargain now?
Price movements are not the only component of long-term stock market returns. Dividends matter too.
Greggs shares offer a dividend yield of 4.2%, handily beating the 3.5% yield of the FTSE 250 overall.
Even including that, the baker has underperformed its benchmark index over the past six months.
Why? After all, Greggs is a proven quantity.
It is profitable. It is growing sales, not only by opening more shops but also through higher sales in existing sites. Rather than having more liabilities than debt, the company has a net cash position.
So, taking a long-term approach to investment, could this be a bargain share at its current price?
Weighing pros and cons
I hope so. I have taken the falling price as an opportunity to buy Greggs shares on multiple occasions.
For now, I am showing a paper loss, but am holding my shares. Hopefully over the long term, the price will come good.
But will it? Or might the decline point to well-founded concerns about the business?
With thousands of shops, a strong brand, high levels of repeat business, and some unique products, Greggs has a proven business model with ongoing growth opportunities. Its keen pricing could see it do well even amid weak economic circumstances.
But the relentless shop opening programme may turn out to be a weakness more than a strength, saturating the market and risking consumers getting bored with the baker.
Rises in National Insurance and business rates as well as wages pose a risk to profitability. Greggs has a large workforce and shop estate.
Drawing some wider lessons
Clearly, a lot of investors are more focussed on those risks than the possibility of Greggs shares recovering.
Currently they are heavily ‘shorted’, meaning many traders expect the share price to fall even further.
I am an investor not a trader. But I do see a few lessons here.
One is the importance of always staying diversified when investing. When a share does badly, the impact on an investor’s overall portfolio is less dramatic when it is only one small part of it.
Another lesson I have drawn is the value of research when looking for shares to buy.
Some investors have talked about the risk of falling sales at Greggs. But a quick look at the company’s accounts and market updates, easily available free online, shows that sales actually continue to grow.
Plus I can easily pop into some Greggs shops myself and try to get a feel for how brisk business is, then consider what that might mean for the shares!
