Greggs actions have dropped 37% in one year. Time to buy?

I recently invested for the first time in Greggs (LSE: GRG) After the baker's actions fell after the results of the whole year. So far, however, my Gregs actions have continued in the wrong direction.

Selling a price ratio of 12, Greggs seems to me a bargain. But if that is the case, why don't they recover from the fall after the results?

Things can get worse before improving

Earlier this month, I was impressed by some of the main results of Greggs. Sales grew 11% year after year, for example, while earnings before taxes increased by 8%.

However, not everyone shared my enthusiasm, and I think they have a point.

The profits that grow more slowly than sales are the opposite of what should happen for a company that has economies of scale in its business. Meanwhile, the main growth in sales exceeded a more modest growth of 6% in similar sales in stores administered by the company.

That matters because the growing income when opening many new stores can work (and Greggs are aimed at 140-150 new stores this year, net of closures), but generally requires a significant capital expense.

However, the great concern seemed to be the growth of 2% in similar sales in the stores managed by the company in the first nine weeks of this year. That suggests a much lower growth than last year, asking questions about whether Greggs is running out of force, since he tries to obtain more from his existing state, for example, opening more stores for night and daytime sales.

If the growth of similar sales fall even more, I think that Greggs actions could also lower even more, even if the total revenues in the chain continue to increase.

This still seems like a bargain!

Even so, growth is growth. The company set its bad beginning of the year in the bad weather that harms the demand of customers.

Even if Greggs did not achieve similar growth, its aggressive opening program of the store could see income increase. So you could also have an inflation price. Thanks to its well -known brand and some unique products, the Ftse 250 Baker has pricing power.

In fact, even if similar sales income remained plans (I doubt it), I think Greggs looks tasty for its current price.

Profit before taxes last year exceeded 200 million. The company has a proven and scalable business model and can benefit from other economies of scale due to central manufacturing plants that prepare products to be sent to their workshop network so that they are in the oven.

I think there is a substantial space for Greggs to expand within the British islands, even before he considers being serious about the potential to grow abroad.

I also see risks. Changing the use of the main street could mean less traffic to pass. The salary increases after the budget will take a bite of the profits.

But as a long -term investor, although I recognize that Greggs actions could fall even more in the coming months, especially if sales growth is weak, I also believe that the current price seems like a possible bargain. That is why I bought Greggs shares earlier this month.