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It has not been a tasty year for shareholders of Greggs (LSE: GRG). A shock profit warning in the summer sent Greggs shares tumbling – and it is not yet clear whether there might still be more bad news to come the next time the company updates the market on its trading. That is scheduled for tomorrow (1 October).
Almost cut in half
Over the past year, the Greggs share price has fallen by 49%. So £1,000 put into the baker’s shares 12 months ago would have shrunk in value to around £510. Ouch!
The five-year picture is better, with Greggs shares moving up 26% during that period.
This is a reminder that, over the long term, Greggs has performed decently. But the recent tumble has not only badly damaged the price, it has also eaten into investors’ confidence.
The profit warning was unexpected and the details were far from reassuring.
Fairly early in the summer, Greggs pinned a weaker-than-hoped-for performance on unseasonably warm weather.
But hot summer days are not exactly a novelty — even if in some years it may seem like it! Greggs surely ought to be able to stock its shops in such a way that it can cope with how fluctuating weather affects what customers want to eat or drink.
Understandably, the profit warning has shaken investor confidence in how the nation’s biggest baked goods is being run.
The sweet smell of opportunity?
Greggs shares almost halving in value over 12 months is clearly not great news for investors who bought then.
A dividend yield of 4.3% is decent but cold comfort given the scale of the share price decline.
In any case, if someone had bought a year ago, the higher share price would mean that their current yield would be only around 2.2%. On a £1,000 investment, that would amount to around £22 per year.
Fortunately for me, I did not buy Greggs shares a year ago. I liked the business, due to its strong brand, extensive shop network, strong customer loyalty and high level of regular purchases. But the share price put me off.
When it fell though, I was able to tuck some Greggs shares into my portfolio and I plan to hold them for the long term. Currently trading on a price-to-earnings ratio of 11, I think the share continues to look like a potential bargain from a long-term perspective.
Some grounds for nervousness
Still, that remains to be seen.
Greggs has a proven business model and I think it has a lot going for it. But a year-on-year fall in pre-tax profits in the first half alarmed the City.
Meanwhile, some of the elements on which Greggs has built its success are shifting around it. For example, a lot of its estate is still on high streets and in many areas these continue to suffer from falling amounts of customers, potentially hurting sales.
I am hoping Greggs will come good and its proven business model can start delivering the goods again. Time will tell.
This story originally appeared on Motley Fool
