Image source: Getty Images
Greggs‘ (LSE: GRG) shares may be the most volatile of all London Stock Exchange. The share price fell 10% in March, following a 19% rise before Christmas. Looking back over the past year, shares jumped 16% last May after falling 25% in January. Each of these declines is hardly a small change – we are talking about hundreds of millions of pounds in capital gains from the markets.
Such unusual fluctuations are often a sign of irrational movements in the market, which can provide some of the best times to buy undervalued stocks. As billionaire investor Warren Buffett famously said about the stock market: “Get greedy when others fear and fear when others are greedy.” So what does Gregs have in stock at the moment? Time for fear or greed?
The first thing you need to pay attention to is the current drop. An investor who put £3,000 into Greggs two weeks ago has lost more than £300 – now worth £2,654. And while there have been constant ups and downs over the past few years, the general trend is clear: stocks are losing value. As of 2022, Greggs’ share price has fallen by 55%.
Continuing to fall?
What’s going on? The simple answer is that this growing bakery chain hit the brakes is a combination of factors.
Gregs is still growing, by the way, in income at least. In the last financial year, like-for-like sales increased by 5.5%. Important details? The benefits are low. Input costs such as inflation and wages are rising and that is putting pressure on margins. The latest conflict in the Middle East threatens to increase inflationary pressures again. This can be a long-term problem in FTSE 250 it is strong.
All this is probably why Greggs is one of the most short stocks in London. Only Wizz Air it has very short interest since late March. About 13% of shares are being shorted suggesting that many investors think there is money to be made since the share price has fallen so much.
Good
Is there anything good here? Yes, I would say there is plenty. The first is a buying opportunity in a growing company with a surprisingly high dividend yield (4.6%) and a below-average price-to-earnings ratio (12).
And while inflation is slowing down, it can help Greggs too. The bakery is pound for pound about the cheapest place to pick up grub on the high street. And as locations expand into airports and extend opening hours into the evening, we can see more opportunities for diners to spend their money.
There is good news from Gregs app as well. Now more than 20% of all transactions are done via smartphone or other device – and the number is growing. These apps can be used to send promotions or ads to customers to keep them coming back for more sausage rolls and pastries.
The stock market has shown that in times of panic, there will always be more opportunities to buy cheap stocks. Will Gregs end up being such a stock? Only time will tell, but I’d say it’s worth considering.
