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Greggs‘ (LSE: GRG) shares are down 13% in the past month. This unusual run comes after the FTSE 250 the bakery chain reported a drop in sales in the third quarter.
Despite this pullback, the stock still returned 78% over five years, including dividends. That market-beating profit was attributed to a 75% increase in the company’s revenue and doubled profits.
But what about the future? Here are the latest growth forecasts for the next few years.
City ratings
If the predictions prove correct, Greggs’ income and salary will continue to rise. This can lay the foundations for a rise in share prices.
| A year | Net worth | Annual Growth |
|---|---|---|
| 2024 | £2.03bn | 12.2% |
| 2025 | £2.23bn | 9.9% |
| 2026 | £2.44bn | 9.4% |
| 2027 | £2.69bn | 10.2% |
We see that Gregs is expected to grow its top line by about 10% on average over the next few years. Most salespeople can take your hand off if you give them that steady growth outlook.
City analysts also expect earnings per share (EPS) to experience healthy growth again, leading to a correction in the forward-looking price-to-earnings (P/E) ratio.
| A year | EPS | The P/E ratio |
|---|---|---|
| 2024 | 135p | 20.4 |
| 2025 | 149 p | 18.5 |
| 2026 | 161 p | 17.1 |
| 2027 | 183 p | 15.0 |
The baker is rolling
The growth story of Greggs centers around its march towards 3,000+ retail locations. It is on track to open 140-160 new stores by 2024, including about 50 relocations.
As of September 28, it had 2,559 retail stores (including 2,016 company-owned stores and 543 registered units).
Chief executive Roisin Currie said the weather in July and riots in England in August did not help sales in the third quarter. Yet like-for-like sales were still up 5% at company-owned stores, despite this “challenge” in the market. Management maintained confidence in its full-year outlook.
Looking ahead, Gregs is well positioned to serve the evening market with both take-out and delivery Just eat it again Uber He eats. It continues to expand its presence within supermarkets and other Primark stores.
The stock trades at about 21 times earnings, which is in line with its average over the past few years. City analysts have a consensus share price target of 3,332p, about 19% above the current 2,790p. Of course, there is no guarantee that it will ever reach this target.
Changing eating habits?
As a shareholder, I see few risks on the horizon. The biggest one is that we are suddenly reaching the peak of Greggs in the UK. That is, the saturation point leading to firm growth has slowed to a crawl (or worse). We’ve seen over the past month how quickly stock prices can pull back when growth is disappointing.
Another risk is the possible increase in healthy eating. This can be given a shot in the arm with the weight loss drugs that reduce appetite that Greggs sells. While the company introduces healthy menu options such as salad boxes and rice bowls, changing eating habits can present challenges.
My takeaway
When I weigh things up, I think there’s a lot to like about the stock. This company has a unique product, undervalued pricing power, and a high return on equity (meaning it has strong profitability).
There’s also the dividend, which keeps rising like a Steak Bake in the oven. Nothing is guaranteed, but the company also has a history of liberally pursuing a special dividend from time to time.
If Greggs shows any more price weakness, I might pick up a few more shares.
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