Greggs plc (LON:GRG), might not be a large cap stock, but it saw a double-digit share price rise of over 10% in the past couple of months on the LSE. The company's trading levels have approached the yearly peak, following the recent bounce in the share price. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Let’s take a look at Greggs’s outlook and value based on the most recent financial data to see if the opportunity still exists.
Check out our latest analysis for Greggs
What's The Opportunity In Greggs?
According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 23.44x is currently trading slightly above its industry peers’ ratio of 22.95x, which means if you buy Greggs today, you’d be paying a relatively reasonable price for it. And if you believe Greggs should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Greggs’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What does the future of Greggs look like?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 24% over the next couple of years, the future seems bright for Greggs. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? It seems like the market has already priced in GRG’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at GRG? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping tabs on GRG, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for GRG, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
It can be quite valuable to consider what analysts expect for Greggs from their most recent forecasts. At Simply Wall St, we have the analysts estimates which you can view by clicking here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
About LSE:GRG
Proven track record with adequate balance sheet.
