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Should I buy FTSE 250 share Greggs after today’s news?

·3-min read

UK share markets are struggling for momentum on Monday as waves of fresh Covid-19 cases emerge across parts of the globe. Even the Greggs (LSE: GRG) share price has failed to stride higher, despite the release of bubbly trading numbers.

Greggs was last fractionally higher in start-of-week business at £25.60 per share. Still, the FTSE 250 share remains almost 60% more expensive than it was a year ago. And I expect the retailer to start rising again before too long.

Sales at Greggs recover strongly

Today, Greggs said sales had been stronger than anticipated since it last updated investors on 10 May. The baker/retailer added that a continuation of recent performances would have a “materially positive impact” on the full financial year.

Greggs has enjoyed a strong revenues recovery in recent months as Covid-19 restrictions on non-essential retail have been rolled back. The FTSE 250 firm said it had expected to witness increased competition from cafes and restaurants on its takeaway offerings.

Greggs has seen pent-up demand for its edible goods reduce in recent weeks, it said. But it added that “like-for-like sales growth in company-managed shops has remained in positive territory”. Underlying revenues are up between 1% and 3% versus the same period in 2019.

A Greggs doughnut and hot drink sit on a table
A Greggs doughnut and hot drink sit on a table

A FTSE 250 firecracker

There’s a lot that I like about Greggs. The surge of the Delta coronavirus variant in the UK has cast a shadow over much of the country’s retail sector, and Greggs could suffer again if lockdowns are reinstated. That said, the company’s classification as an essential retailer would help it avoid the worst of any washout.

And as a long-term investor, I’m attracted by its decision to embrace the fast-growing delivery market following a tie-up with Just Eat. It’s a development that would also help the Greggs battle any worsening of the Covid-19 crisis on these shores. Delivery sales accounted for 9.6% of all company-managed stores in the first 11 weeks of 2021.

I’m also encouraged by Greggs’ decision to turbocharge its store expansion programme. Back in March, it said “opportunities for estate growth appear to be as good, if not better, than they were a year ago.”

And, as a consequence, the FTSE 250 retailer hiked its shop estate target to 3,000. The business had 2,078 outlets up and running at the turn of 2021.

Should I buy this UK share today?

Finally, I think the company’s successful track record of menu refreshments and barnstorming introduction of new products, like its famous vegan sausage rolls, offers lots of encouragement too.

There’s plenty to get excited about with Greggs, clearly. Still, it’s worth remembering the company operates in an ultra-competitive marketplace. What’s more, at current prices, Greggs commands quite a hefty valuation. It trades on a forward price-to-earnings (P/E) ratio of 29 times.

I’d wait for that premium to come down a bit before buying the FTSE 250 share for my own stocks portfolio.

The post Should I buy FTSE 250 share Greggs after today’s news? appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021

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