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It has not been a good year so far for Greggs (LSE: GRG). Greggs shares have crashed 21% this year. Yes, this year. Less than three weeks into 2025, the baker has had over a fifth wiped off its share price.
But as a long-term investor, I have had my eyes on the sausage roll supplier. So could this share price tumble represent a buying opportunity for my portfolio?
Concerns about future customer demand
What explains that fall? This month, the FTSE 250 business updated the market on its performance last year. Total sales grew 11% year-on-year. The fourth quarter saw sales growth slow, but it still came in at a pretty impressive 8%.
The company opened a record number of new shops, it expects strong ongoing opening momentum and the year should come in line with the board’s expectations.
All of that raised the question, why the price crash? After all, that news sounds upbeat.
One clue was a decline in net cash from £195m to £125m. Still, fitting out new shops – as well as planning a new distribution centre – eats up cash. But as a long-term investor I see that as potentially positive for the business.
But the bigger concern, in my opinion, was Greggs’ take on what might happen next. It pointed to lower consumer confidence as a key risk to expenditure. That, it seems, has given the market fright.
Lots to like about the long-term outlook
I think that is a valid concern. The company said it had carefully managed costs in the fourth quarter, so while it ought to be able to meet expectations for 2024 performance, I see a risk that higher costs could be more problematic for profits at the full-year level in 2025.
But Greggs has been here before, many times. It has honed its business model through recessions, weak consumer spending, shop shutdowns and more. I have confidence that management will continue to move it forward positively.
Greggs has a unique brand and has done a good job developing strong products in what many thought was basically a commodified space. Its large shop estate gives it economies of scale and it has also been harnessing digital technology to help drive sales (although in my case I find its screen-based pricing displays a step backwards from when I could just look at a product and see a price tag beside it).
Not yet a bargain, but may be heading there
Still, Greggs trades on a price-to-earnings ratio of 17. So even with those strengths, I would not describe it as a bargain especially taking into account the potential for a profit squeeze this year, due to weaker consumer spending and also higher costs via higher employment costs.
But Greggs shares are 7% cheaper than they were five years ago. The business is now bigger and, in my opinion, more battle-tested than it was then.
At this price, I am still not ready to buy. But I am keeping a close eye to see whether further share price falls could make this seem like an attractive long-term buying opportunity.
