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It’s okay to say that Greggs (LSE: GRG) shares have had a mixed 2024. For most of the year, their numbers seemed to keep rising. But the bad fall in October and November only succeeded in wiping out all those gains.
Fortunately, I sold my position at FTSE 250-A seller listed to walk away in the fall for fear that your valuation looked like foam on what is a very simple, or high-quality, business.
But I still rate the stock highly. And there are several reasons to think that 2025 could be a better year for the sausage seller.
So, now is the time for me to buy again?
It’s not that sweet
To be clear, Greggs’ fall from grace was not due to a crisis in trading. In my opinion, it was all about market expectations not meeting reality.
During the first half of the year, the company revealed a 14% increase in total sales to almost £1bn. Profits were also up slightly more than 16% at £74m. Given these numbers, it’s no wonder the stock price went up.
However, that same stock was trading at a price-to-earnings (P/E) ratio in the mid-20s and highs when, in early October, CEO Roisin Currie and co revealed that sales growth had slowed in Q3 . At the time, economic uncertainty, weather and riots (yes, you read that right) were to blame.
The news never went down well, despite the baker sticking to his idea for a year. At that rate, the market clearly wanted a improve in the direction!
Since then, we have seen a slight recovery in the share price. But it’s still about 15% below its 52-week high in September.
Better times ahead?
A significant decline in this stock leaves the shares trading at a very favorable P/E forecast for 19 FY25. That’s still not what most investors would call a bargain. But it’s also not outrageously expensive for a highly profitable business with a strong supply chain network with a strong brand and dedicated following. There is also a dividend yield that looks secure at 2.6%.
Considering how competitively priced its holdings are, there’s also an argument to think that Gregs shares could do well if (and that’s ‘if’) inflation rises more than expected and the cost of living crisis continues.
On the other hand, it is worth remembering that Greggs is facing paying higher National Insurance contributions for its 32,000 employees from April. This will increase annual costs by tens of millions of pounds. Could more investors be looking to exit before this starts?
Here’s what I do
The Q4 trading update is due next Thursday (9 January). Since buying (or selling) before events like this can be risky, I will wait until I read and digest that before deciding to add stocks to my portfolio again. The signs that the company has a good finish to 2024, combined with that low valuation, would force my hand.
For now, it makes sense to keep looking for other market opportunities that I won’t be able to take advantage of if I choose to hide my money in this old favorite.
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