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Are Greggs shares worth buying?

·3-min read
A Greggs doughnut and hot drink sit on a table

Greggs (LSE: GRG) shares jumped almost 3% yesterday. But the stock has been having a good run generally. The share price is up more than 45% in 2021 so far and has increased 60% in the last 12 months.

Most of the gain has happened this year. And this is most likely due to the easing of lockdown restrictions and the success of the vaccine roll-out programme. But the question I ask myself now is, are Greggs shares will worth buying?

My answer is yes — for me at least — and I’d buy the stock. I’ve commented on the food retailer before and was bullish then. I’m still positive now. The FTSE 250 company has just released a trading statement, which is why the stock rallied yesterday.

Trading update

It was a short but sweet announcement from Greggs on Monday. It follows on from the fairly lengthy trading update it issued on 10 May.

But the tone of this new release was positive and talked aboutcontinued strong recovery in performance”. Greggs said that while the initial impact of pent-up demand for retail has now reduced, like-for-like sales growth ranges between 1% and 3% versus the same period in 2019. It’s worth noting here that like most companies, it’s using pre-pandemic figures for comparison.

While this uplift in revenue may not seem much, I think it’s encouraging that it’s delivering growth and sales are above the pre-coronavirus level. The UK economy isn’t fully out of lockdown yet. But when it is, I’d expect this growth range to improve.

The statement went on to say that if this strong sales recovery continues it “would have a materially positive impact on the expected financial result for the year”. There’s no guarantee this will happen. But if it does, I reckon Greggs shares could move much higher than they currently are.

The company is due to release its interim results on 3 August. This is when investors will get an “updated picture”. But for now, the signs are reassuring and possibly an indication of more good things to come.

Risks

As I previously mentioned, I’d buy Greggs shares. But the stock isn’t cheap and is trading close to its all-time high. This means that it could be very sensitive to any negative news.

Also the strong recovery in sales may not continue over the coming months. It appears that everything is on track for ‘Freedom Day’ on 19 July, but this could still be pushed back and may impact the stock price.

My view

The lure of Greggs’ products, such as its well-known vegan sausage roll, still remains strong. The company has stores strategically located in transport hubs, retail parks, as well as shopping and office locations. But there’s still uncertainty over the commuter trade and many companies haven’t decided on the working location strategy for their employees.

In my opinion, the key to Greggs’ success is people moving, whether this be by foot, public transport or by car. But I think the firm could do well due to its diverse product and value offering. No wonder it’s the UK’s leading food-on-the-go retailer. Hence, I’d buy.

The post Are Greggs shares worth buying? appeared first on The Motley Fool UK.

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Nadia Yaqub 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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