Greggs shares are down 37% in a year. Time to buy?

I lately invested for the primary time in Greggs (LSE: GRG) after the baker’s shares fell following full-year outcomes. To this point, although, my Greggs shares have continued heading in the incorrect route.

Promoting on a price-to-earnings ratio of 12, Greggs appears to be like like a cut price to me. But when that’s the case, why are they not bouncing again from the post-results hunch?

Issues might worsen earlier than they get higher

Earlier this month, I used to be impressed by a few of Greggs’ headline outcomes. Gross sales grew by 11% 12 months on 12 months, for instance, whereas pre-tax revenue was up 8%.

Not everybody shared my enthusiasm, although – and I believe they’ve a level.

Earnings rising slower than gross sales is the alternative of what ought to occur for a firm that has economies of scale in its enterprise. In the meantime, the headline development in gross sales outstripped a extra modest development of 6% in like-for-like gross sales at company-managed retailers.

That issues as a result of rising revenues by opening a lot of new retailers can work (and Greggs is focusing on 140-150 new retailers this 12 months, web of closures), nevertheless it usually requires vital capital expenditure.

The massive concern, although, appeared to be the two% development in like-for-like gross sales in company-managed retailers in the primary 9 weeks of this 12 months. That means far decrease development than final 12 months, elevating questions on whether or not Greggs is working out of steam because it tries to get extra out of its present property, for instance, by opening extra retailers for night in addition to daytime gross sales.

If like-for-like gross sales development falls additional, I reckon Greggs shares may additionally head down additional, even when complete revenues on the chain proceed to enhance.

This nonetheless appears to be like like a cut price to me!

Nonetheless, development is development. The corporate pinned its poor begin to the 12 months on unhealthy climate hurting buyer demand.

Even when Greggs achieved no like-for-like development, its aggressive retailer opening programme might see revenues enhance. So too might worth inflation. Thanks to its well-known model and a few distinctive merchandise, the FTSE 250 baker has pricing energy.

In truth, even when like-for-like gross sales revenues have been to stay flat (which I doubt will occur), I reckon Greggs appears to be like tasty at its present worth.

Pre-tax earnings final 12 months topped £200m. The corporate has a confirmed, scalable enterprise mannequin and may profit from additional economies of scale due to central manufacturing vegetation that put together merchandise to be shipped out to its store community to be popped in the oven.

I believe there’s substantial house for Greggs to develop throughout the British Isles, even earlier than it considers getting severe concerning the potential to develop abroad.

I see dangers too. Altering excessive avenue utilization might imply much less passing visitors. Wage will increase following the Finances will take a chunk out of earnings.

However as a long-term investor, though I recognise that Greggs shares might fall additional in coming months particularly if gross sales development is weak, I additionally assume the present worth appears to be like like a potential cut price. That’s the reason I purchased Greggs shares earlier this month.