Why Greggs plc (LON:GRG) Could Be Worth Watching

While Greggs plc (LON:GRG) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price increase on the LSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? 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 my valuation model, Greggs seems to be fairly priced at around 14% below my intrinsic value, which means if you buy Greggs today, you’d be paying a fair price for it. And if you believe the company’s true value is £20.07, then there’s not much of an upside to gain from mispricing. 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. Greggs' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

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 its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping an eye on GRG, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, 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.

If you'd like to know more about Greggs as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 4 warning signs we've spotted with Greggs (including 1 which makes us a bit uncomfortable).

If you are no longer interested in Greggs, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. 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.
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