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This FTSE 250 growth stock has fallen heavily and I’m a BUYER!

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One of my biggest investing regrets, aside from the obligatory ‘not buying Apple/Amazon way back’, was failing to pick up a slice of Greggs (LSE: GRG) several years ago. I liked the company, noticed its growing popularity on the high street and thought the valuation was attractive.

The shares were around 400p a pop back then. Fast forward to earlier this year and the very same stock was trading at almost 2,500p. 

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Recently, however, some of this momentum has been lost. A perfectly good Q3 update at the start of October was dismissed by some who had become used to earnings upgrades. Greggs had become a victim of its own success and, having fallen almost 30% from the aforementioned peak by last week, I decided now was finally the time to act. 

Is buying now a good idea? Well, it’s quite possible the shares will continue falling, particularly as they still change hands on a punchy 22 times forecast earnings. Regardless of its quality (demonstrated by its high returns on invested capital and sound finances), there’s always a chance of paying too much for any company, including Greggs.

Aside from this, trading could also reverse for some unknown reason, or the company will simply find it hard to beat this year’s performance going forward (although I’m positive on its growing vegan range). Indeed, some might argue that CEO Roger Whiteside’s decision to sell almost 93,000 of his shares on 7 October suggests a lack of faith going forward, rather than simply banking some profit after a strong run.

The reasons listed above are valid, as is my concern that I may be anchored to the highs reached earlier this year. Nevertheless, this is precisely why I’ve decided to keep my initial stake small for now. Should Greggs’ valuation continue to drop, not only will I buy more, but the dividends I receive should help cushion the pain while I await a recovery. 

As ice hockey legend Wayne Gretzky once said: “You miss 100% of the shots you don’t take“. I’ve learned the hard way (again) and am now in for the long haul.

Also on the shopping list

Another stock I’ve bought in October has been cruise operator Carnival (LSE: CCL) — a position I began building back in July. 

So far, this stock hasn’t performed particularly well for me. Indeed, the company’s value is now around 10% lower than at the time of my initial purchase.

Why have I ‘averaged down’? Buying more as the share price falls mean the investment case has improved. I’m getting more stock at a cheaper price, plus dividends.

Carnival remains a clear market leader in an industry only likely to grow as people of all ages (such as active retirees and experience-chasing Millennials) catch the cruising bug. There will be headwinds — slowing global growth/recessions, for example — but the idea that an entire industry will suddenly hit the rocks is taking speculation a little too far.

No, Carnival is one of those blue-chip chuggers that I think most portfolios would benefit from. Besides, one might argue that quite a bit of this pessimism is already firmly baked in. A forecast price-to-earnings (P/E) ratio of just 9 continues to look cheap relative to its average of 19 over the last five years. A dividend yield of 5%, covered twice by profits, is a bonus.

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Paul Summers owns shares of Carnival and Greggs. The Motley Fool UK has recommended Carnival. 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.

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