FTSE 250 fast-food retailer Greggs (LSE: GRG) handed the milestone of £2bn in gross sales in 2024.

Other than this 11.3% year-on-year gross sales enhance (to exactly £2.014bn), its 9 January This autumn outcomes noticed a file 226 new outlets opened. One other 140-150 internet new retailer openings are deliberate for 2025 so as to add to the overall of two,618 at present buying and selling.

The purveyor of a number of of the UK’s most moreish culinary treats, for my part, added that offer chain capability growth is on monitor. This helps these ongoing plans for progress.

A threat to those is intense competitors within the meals retail sector.

That stated, analysts forecast Greggs’ earnings will develop by 4.5% every year to the top of 2027. And it’s finally these that drive a agency’s share price and dividend greater.

So why are the shares down?

The inventory fell 15% after the This autumn figures as they missed forecasts for a 2024 year-on-year gross sales rise of 12.2%.

As a former funding financial institution dealer, I perceive that a part of the share price displays such forecasts. Nonetheless, my method as a non-public investor over a few years has been to take a long-term view.

In my expertise, the longer an funding is held, the larger the prospect it has to get better from short-term market shocks.

Consequently, once I have a look at Greggs’ efficiency numbers I feel there’s a cut price available.

Are the shares now considerably undervalued?

The primary a part of my evaluation of Greggs’ pricing is to match its key valuations to these of its rivals.

On the price-to-earnings ratio, the shares at present commerce at 16.5 towards a peer group common of 20.2. This contains J D Wetherspoon at 14.7, Whitbread at 21.4, and McDonald’s at 24.4. So, it appears to be like very undervalued on that foundation.

I feel it apposite to notice right here that Greggs overtook McDonald’s because the UK’s high takeaway for breakfast in 2023. And it retains that primary place.

Greggs additionally appears to be like very undervalued on the important thing price-to-sales ratio, buying and selling at 1.2 in comparison with a competitor common of three.3.

Nonetheless, on the price-to-sales ratio, Greggs appears to be like barely overvalued at 4.6 towards its 3.8 peer common.

To resolve its valuation, I used the second a part of my pricing evaluation methodology. This includes analyzing the place a inventory must be, based mostly on its future money movement forecasts.

The ensuing discounted money movement analysis reveals Greggs’ shares are technically 62% undervalued at their current £20.47.

So a good worth for them is £53.87, though market vagaries would possibly push them decrease or greater.

Will I purchase the inventory?

I’m on the later stage of my funding cycle, aged over 50 now. Which means the size of my market view has contracted to round 10 years from the earlier 40.

My focus now’s on shares that may generate for me a really excessive passive earnings from dividends.

Analysts forecast Greggs’ yield will likely be 3.2% in 2025 and three.9% in 2026. By comparability, the common yield of the FTSE 250 is presently 3.3%.

Nonetheless, the common yield of my passive earnings shares is sort of 9%. So, Greggs isn’t an unmissable purchase for me.

That stated, if I had been within the early phases of my funding cycle, I’d purchase it for its progress potential and main undervaluation.