Greggs (LSE: GRG) shares have been a lousy investment recently. Over the last six months, the company’s share price has fallen nearly 30%.
To make matters worse for investors, a well-known broker has recently come out with a Sell rating. This particular broker believes the shares are set to continue falling.
Downgraded to Sell
The broker I’m referring to is Panmure Liberum. On Tuesday (21 January), it downgraded the popular FTSE 250 stock from Hold to Sell and cut its price target from 3,300p to 1,733p. That’s roughly 17% below the current share price. This implies that the broker expects the shares to experience further weakness.
Given Greggs’ recent struggles, Panmure Liberum has downgraded its 2025 and 2026 profit before tax forecasts by 6% and 10%, respectively. And it has said that a dividend cut could be on the cards if sales are weak this year.
Its analysts believe that Greggs’ period of ‘supernormal’ growth may be over and they reckon the rollout of evening trade (a strategy designed to boost growth) may actually hurt the high street chain. “We query whether it is resonating with customers in a highly competitive market,” they wrote in a research note.
My view on Greggs
Personally, I’m not as bearish on Greggs shares as Panmure Liberum’s analysts are. After the recent share price fall, I actually think there could be an opportunity here for long-term investors to consider.
It’s not the first stock I’d buy today if I was looking to put some capital to work in the market (I see lots of companies with more growth potential). But I do think it has potential in the long run.
This is a company with a strong brand and a high level of profitability. And it’s rolling out new stores all the time (226 new shops were opened in 2024).
Meanwhile, the valuation has come right down recently. Currently, the forward-looking price-to-earnings (P/E) ratio here is under 15 looking at the 2025 earnings per share (EPS) forecast, although this EPS forecast could fall in the months ahead.
So, I think the stock could be worth considering as a long-term investment. Taking a five-year view, it could potentially deliver attractive returns.
Several risks
Having said all that, there are quite a few risks to consider here.
The weak UK economy is one. This could lead consumers to cut back on food on the go.
The National Insurance changes announced in the 2024 Budget are another. These are likely to hit Greggs’ profits.
Finally, theft – and the associated hit to profits – can’t be ignored. Recently, I read that some Greggs stores have had to put padlocks on their beverage cabinets to stop people stealing bottles of Coke.
Given these issues, risk management is crucial. If one is looking to buy Greggs shares, I think it’s smart to consider taking a relatively small position (and having plenty of other stocks for diversification).
This post was originally published on Motley Fool
