Greggs (LSE: GRG) shares are flying! The share price is up around 40% since July. Anyone investing a £10,000 stake in the bakery chain three months ago would now be sitting on a cool £13,960 – and that’s excluding dividends!
What happened here? And with a price-to-earnings (P/E) ratio sitting at a below-average figure of around 16, could this be a time to buy into a growing company cheaply?
Three reasons
As far as I see it, there are three main reasons for the surging share price. The first, and likely most impactful, is sales growth. Total sales grew 7.7% in the 13 weeks to late September – comparing like-for-like with last year. This might be a sign that Greggs is still capable of growing its business after a few tricky years.
What are the reasons for increasing revenue? Menu innovation is one – the ‘chicken roll’ alternative to sausage rolls seems to have been a hit.
Better weather – by virtue of a summer that felt like one long heat wave – increased footfall over the last few months. And extended opening hours and orders from delivery platforms helped too. Crucially, these are factors that could continue to work in Greggs’ favour in the years to come.
A second factor is the recently announced efficiency plan. A restructuring of the company’s manufacturing sites is expected to bring in £20m in annual savings. That looks like a decent wedge of cash compared to profits in the last financial year that came in near the £120m mark.
A third possible factor is bullishness from analysts covering the stock. JPMorgan, for instance, upgraded its price target from 2,050p to 2,210p while maintaining a Buy rating on the stock. Favourable analysis from those studying the stock can make a small but meaningful difference in whether investors buy or sell.
Slam-dunk buy?
Does all this make Greggs a slam-dunk buy today though? Perhaps. The company is indeed performing admirably, though a troubled backdrop has not changed all that much.
For context, the Greggs share price is still down 35% or so from an all-time high back in 2021. The rise in input costs like wages and supply expenses has been squeezing margins. This is a problem that could persist considering the ongoing – and seemingly growing – disturbance in the Middle East. To take just one example, rising fuel costs will increase inflation throughout the Greggs supply chain, ultimately making it more costly to produce a pastry or sandwich.
Yet taking into account that Greggs is still opening hundreds of shops a year, I think there is enough here for investors to consider the stock. Personally, though, I have my eye on other opportunities at the moment.
Should you invest £5,000 in Greggs Plc right now?
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John Fieldsend does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
