The pandemic was a strange time for Greggs (LSE: GRG) shares. In 2020, the share price fell from a January high of almost £24 to a September low of £11. The threat of extended lockdowns and closed bakeries halved the value of the company, resulting in a total loss of almost £2 billion in market capitalisation.
If I had seen an opportunity with these battered stocks, what could I have gained from it?
Raise the triple
Recovery did not take long. The vaccine arrived the following spring and put an end to the worst of the COVID-related problems.
The share price, probably below its real value, soared. Today I was able to buy shares for around £32, almost triple that virus-driven low. A £10,000 share at the time would have become £27,675 today. Not bad.
But the story is not limited to getting rid of a virus. Competitors have not prospered as much in the same period. Domino Shares have been down since the pandemic. Owner of Beefeater and Beer fair White bread Shares are up, but only by 31%. Even the global fast food giant McDonald's It has risen only 32%.
Greggs appears to have done exceptionally well. Why is this? And is the stock a must-have addition to any growth-hungry portfolio?
To buy or not to buy?
Low prices are one reason. Stocks rose when pandemic threats faded, but also when a cost-of-living crisis emerged. Britons began tightening their belts and British wallets opened to sausage rolls and baked steaks that, at least back then, could still be bought for a pound coin.
Even now, Greggs is one of the new places on the high street where you can walk in with a fiver and walk out with a hot meal.
Attractive prices have been combined with very astute management. An expansion plan is underway and the latest figures show that the company is on track to open between 140 and 160 new stores in the calendar year. Growth in existing stores has been helped by the extension of opening hours, which in some stores have been extended to 8pm.
Management hasn't even limited their ideas to food, and has teamed up for a collaboration with Primark to sell Greggs branded products. I never thought I'd see the day when youngsters would dress up in clothes bearing the name of a high street bakery, but here we are.
With the company running at full capacity, the question is really valuation. Greggs is trading at 24 times forward earnings, which seems very expensive by UK standards (the FTSE100 Index The current average is around 12 times. However, restaurants are unlikely to disappear and Greggs seems to be on a better upward trajectory than any other. With a somewhat cheaper entry point, I think this would be a stock I would buy.