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After an uninspiring 12 months (to place it politely) Greggs (LSE:GRG) shares instantly got here again to life on Wednesday (1 October). The inventory jumped 7% in response to the agency’s Q3 buying and selling replace.
It’s been a bumpy few months for the FTSE 250 bakery chain. However regardless of this, traders who’ve owned the inventory for the long run and stayed with it have really completed okay.
Lengthy-term investing
5 years in the past, £5,000 was sufficient to purchase 396 Greggs shares. And whereas it’s been an up-and-down journey since then, the inventory is now 36% larger than it was in September 2020.
That’s sufficient to show a £5,000 funding into one thing price £6,800. However that’s solely a part of the story – the corporate has additionally distributed £3.27 per share in dividends to its traders.
With 396 shares, that quantities to £1,295 – one other 26% – which brings the whole return to 62%, or 10% a 12 months. On the identical foundation, the FTSE 250 as an entire is up round 46%, or simply underneath 8% a 12 months.
This hasn’t been an accident — the corporate’s repute for worth and high quality has been a key long-term power. And the most recent knowledge signifies that that is nonetheless firmly intact.
Is the worst over?
The inventory market’s response to the most recent replace from Greggs was very constructive, however I didn’t see any actual indicators that the enterprise is beginning to get well. In reality, I assumed the replace was fairly worrying.
The corporate elevated its retailer depend by 57 (130 venues opened and 73 closed) and whole gross sales had been up 6.1%. However adjusting for the brand new shops, income development was really 1.5%.
This metric is extraordinarily necessary as a result of Greggs can solely maintain opening new shops for therefore lengthy. Over the long run, development goes to have to come back from larger revenues in present venues.
Not solely is that beneath inflation, it’s the worst quarter of the 12 months up to now. In the course of the first half of 2025, like-for-like gross sales grew 2.6%, with Q2 exhibiting some indicators of enchancment on a poor Q1.
Why is the inventory climbing?
Given this, it’s pure to surprise why the inventory is climbing. I feel the apparent reply is that traders had been anticipating worse and the share value mirrored these expectations.
The corporate attributed its poor efficiency in Q2 to unusually heat climate and this has endured via Q3. So traders may effectively have been pessimistic.
Going into the report, although, Greggs shares had been buying and selling at a price-to-earnings (P/E) ratio of 11. That’s the identical as Related British Meals, the place Primark has seen like-for-like gross sales declining.
The inventory additionally had a big quick curiosity earlier than its Q3 replace. And which means a rising share value might need brought about traders betting in opposition to the inventory to purchase, pushing the inventory larger nonetheless.
So the place are we now?
During the last 5 years, Greggs shares have been an honest funding. Weak like-for-like gross sales development, nevertheless, makes me cautious in regards to the inventory over the subsequent 5 years.
Nothing within the newest replace made me suppose the enterprise is recovering from its latest struggles, reasonably than simply surpassing low expectations. And that’s why I’m not seeking to purchase it proper now.
