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In August, I sold about half my stake in a takeaway retailer. Greggs (LSE: GRG) from my stocks and Shares ISA. As I write, this is considered one of my best investment decisions. In the last month, the shares have lost 10% in value.
Is it time to increase my stake again or does recent momentum suggest I should consider selling the rest?
What went wrong?
To a casual observer, a double-digit drop in the price of any stock over such a small period of time suggests that something has gone very wrong. But I really don't think that's the case. He FTSE 250 The member's latest set of quarterly numbers, revealed on October 1, still looked pretty attractive to this fool.
Total sales rose 10.6% over the three-month period to September 28 and comparable sales (at company-run stores) rose 5%. Add to that a ton of new store openings and cost inflation at the lower end of expectations, and there's actually a lot to like.
But there is one thing that No as. And it was exactly what I was worried about when I hit the “sell” button a while ago.
No changes
Having delivered some more than decent numbers, management stated that its expectations for full-year operations remained unchanged.
Now, this wasn't bad in and of itself. It's very reassuring to know that CEO Roisin Currie and company are confident in their projections. But it's less than desirable when stocks are flirting with all-time highs and the valuation looks strong, to say the least. In such a scenario, I want a company to blow the doors off!
And Greggs just… wasn't.
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For the avoidance of doubt, this remains one of my favorite UK mid-tier stocks. It sells inexpensive delicacies that most people buy out of habit, useful during a cost-of-living crisis. Aside from the pandemic, the company is also consistently generating excellent returns on the money invested in the business. This tends to compound shareholders' money over time.
The problem is that these attractions are not a secret. In fact, they help explain why Greggs' share price was on a roll for much of last year and into 2024.
It also helps explain why actions still it trades with a forecast P/E ratio of 21. That's not as high as before. But it's still pretty shocking for a company in the consumer cyclical sector. It's also quite worrying considering how volatile the price has been over the last five years.
Stay patient
Going back to my original set of questions, I'm not thinking about selling my remaining stake in the company. Taking into account the aforementioned attractions and the ongoing investment in its supply chain (redevelopment/expansion of distribution centers and a new frozen products manufacturing and logistics facility), I believe the long-term outlook remains positive.
On the other hand, I'm also in no rush to buy back my shares just yet. Without the sense that earnings guidance might be about to send analysts back to their calculators, I'm worried the price could fluctuate for a while (or worse).
If Greggs stock becomes a bargain, I will definitely reconsider. But I don't think we're there yet.