Greggs shares hunch once more, however may go on a (sausage) roll

The previous 12 months have been a tough trip for Greggs (LSE: GRG) shareholders. At their 52-week excessive on 20 September 2024, Greggs shares peaked at 3,250p. However the FTSE 250 inventory has slumped like badly made puff pastry ever since.

Flaming June batters baker

As one of many UK’s main suppliers of food-to-go, Greggs sells round one million of its famed sausage rolls every single day. Nonetheless, the group’s reliance on promoting sizzling and takeaway meals has proved a handicap in the course of the current heatwaves.

Final Wednesday (2 July), the share value plunged after the agency issued a revenue warning, supposedly triggered by the hottest-ever June in England. The corporate warned that this heatwave had lowered footfall to its property of round 2,650 shops.

Within the first half of 2025, Greggs’ like-for-like gross sales development slowed to 2.6%, introduced down by “very excessive temperatures”. This clearly disillusioned buyers buoyed by robust gross sales in the course of the heat spring. This information crashed the Greggs share value to a one-year low of 1,645p, earlier than it recovered barely to shut at 1,675p.

In my lengthy expertise, when retail bosses blame issues on the climate, there are often deeper points. I believe that some shareholders bought inventory on fears that this non permanent blip would possibly flip right into a sustained downturn in gross sales. There are additionally fears that the group’s UK market is develop into saturated, slowing Greggs’ future enlargement.

The enterprise faces one other hit to earnings within the type of practically £100m of additional prices resulting from larger Nationwide Insurance coverage contributions launched in final 12 months’s Price range. Then once more, the group has responded by introducing new product ranges, in addition to opening extra retailers within the evenings.

Is Greggs a fallen angel?

As a price investor, I like shopping for into ‘fallen angels’ — in any other case strong companies present process non permanent share-price slides. For me, the cheaper a inventory will get, the extra interesting it turns into — assuming no different apparent crimson flags, that’s.

Proper now, Greggs shares look cheap to me in historic phrases. They commerce on below 11.4 instances trailing earnings, delivering an earnings yield of 8.8%. The slumping share value has boosted the dividend yield to 4% a 12 months, barely above the FTSE 100‘s yearly money yield of three.6%. This payout is roofed a beneficiant 2.2 instances by historic earnings.

Additionally, not like a lot of its debt-laden friends, Greggs had a internet money place of £125.3m at end-2024. To me, these will not be the basics of an organization in disaster.

One previous market saying warns ‘by no means purchase a falling knife’ — and I do know full properly that such trades can show disastrous. Even so, my spouse and I purchased Greggs shares throughout Wednesday’s nosedive at an all-in value of 1,696.7p (together with stamp responsibility and dealing fee).

After all, I may properly be improper. If gross sales development within the second half of 2025 is even weaker, then Greggs shares may sink once more. Likewise, if working earnings, earnings and revenue margins slide, then this buy could depart a nasty style in my mouth. However I’m hopeful that the Greggs share value will go on a (sausage) roll in 2025/26!