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The Greggs share price is down 30%. Should you buy as lockdown ends?

High street baker Greggs (LSE: GRG) needs no introduction. Since boss Roger Whiteside took charge in 2013, Greggs’ share price has risen by more than 270%.

However, lockdown forced all Greggs’ stores to close. Although they are now reopening, it’s too soon to know how long it will take for sales to return to more normal levels. Will the firm’s shares still justify a growth rating, or is the future going to be tougher for this business?

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Still a great business

As you’d expect, the Greggs share price has been hit hard this year. The stock is down by 30% from last year’s record high of 2,550p.

In an update last week, Greggs warned that the impact of social distancing would be hard to predict. The firm said that “we must anticipate that sales may be lower than normal for some time”.

The firm’s stores have been adapted to meet distancing requirements, which means no seating, fewer people in store, and fewer staff to serve. The group’s product range is also limited as its manufacturing facilities have not yet returned to full capacity.

It’s obvious that these headwinds could restrict sales. But personally, I’m not too concerned about these temporary limitations. Greggs was a well-run business before. I’m pretty sure it will continue that way.

Fortunately, the company went into the crisis with very little debt, so we don’t need to worry about financial pressures.

This is what worries me

Whiteside has transformed Greggs into a business that sells more products for longer each day than ever before. According to survey data published by the company last year, it’s number one by market share for sandwiches, number two for breakfast, and number three for takeaway coffee.

What worries me is that the firm’s growth streak could be coming to an end. This could mean a longer spell of weakness for Greggs’ share price. In our post-lockdown world, will high street footfall return to normal? Will Greggs be able to find equally profitable locations elsewhere?

At the end of last year, the company announced plans to increase its store estate from 2,050 outlets to “more than 2,500 shops”. Plans are also underway to accelerate online services for delivery and click and collect.

However, the company has now put its plans to open new stores on hold. This year will see a net increase of just 10 stores, compared to 97 last year.

Greggs share price: the right time to buy?

This could be a temporary glitch. Greggs has a track record of beating expectations and I wouldn’t bet against such a good business. But I’m not convinced the shares are really cheap at the moment.

This year will understandably be bad. But analysts expect profits in 2021 to still be 20% lower than in 2019. Based on these forecasts, the stock trades on a lofty 24 times earnings. Although I might be missing out, I don’t feel comfortable buying at this level.

For now, I rate Greggs as a hold and will continue to watch from the sidelines.

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Roland Head 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.