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The Greggs share price has fallen by 28%. Here’s why I rate it a bargain buy today

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The 2020 stock market crash has battered the FTSE 100 and the FTSE 250 indices. Both have shed significant chunks of their value, falling by 19% and 25% respectively. Many top-drawer UK shares are now trading on the London Stock Exchange at reduced prices, signalling that now may be an opportunity to grab a bargain.

One company I specifically like the look of is the food-to-go/bakery chain Greggs (LSE: GRG), whose share price has fallen by around 28% since mid-February.

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Disruption to business

Since lockdown restrictions were announced in the UK, Greggs has temporarily closed all 2,050 of its shops. Inevitably, this will have a huge impact on earnings. 

Earlier last month though, the company announced that it should have sufficient liquidity to withstand a prolonged period of closure. On top of this, the high street operator has taken steps to further bolster its financial position. This took the form of the company raising £150m through the Bank of England’s Covid Corporate Financing Facility.

Moreover, the company is currently trialling the reopening of some sites across the country. For now, a reduced menu will be on offer and social distancing measures in place. Provided this trial proves successful, the firm intends to have all stores open again by July.

Strong financials

Prior to the coronavirus pandemic, Greggs had been delivering impressive like-for-like growth. And pre-tax profit was up by 27% in 2019, while turnover has increased in each consecutive year since 2005.

Over the years, Greggs has increased the number of its shops steadily and cemented its position as ‘the North East’s favourite place to eat’ (it’s pretty popular in the South too). What’s more, the company has raised its dividend per share at an admirable rate over the years.

However, it’s worth noting that the shares don’t come cheap, even after a sharp fall in the company’s share price. The price-to-earnings ratio sits at around 18 at the time of writing. While this figure could lead some to believe that the shares are overvalued, I think it’s justified by Greggs’ potential to continue increasing earnings over the long term once the pandemic subsides.

Britain’s favourite

The much-loved retailer is the largest bakery chain in the UK and boasts a loyal customer base. Over time, the Greggs name has become synonymous with savoury products such as the sausage roll and the steak bake.

Additionally, the company has successfully established itself in the dynamic and fast-moving food-to-go market, which is no mean feat. Over the coming years, I think Greggs is well-placed to strengthen its position in this market and continue to deliver popular food at affordable prices.

For this reason, I rate the company a strong buy. I expect investors could be rewarded with attractive returns over the long term once lockdown restrictions are lifted and the retailer resumes operations. Ultimately, Greggs’ currently reduced share price only sweetens the deal.

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Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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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