Greggs plc (LON:GRG), the UK's leading bakery chain, has seen its share price fall by around 13% in the past month, following a slowdown in sales in the third quarter. However, the company's long-term growth prospects and undervalued stock price present an attractive investment opportunity for those looking for value in the UK Hospitality sector.

Greggs' undervaluation can be indicated by several key financial metrics, which compare favorably to its peers and industry averages. These metrics include:

1. Price-to-Earnings (P/E) Ratio: Greggs' P/E ratio of 16.3x is significantly lower than the peer average of 28.3x and the UK Hospitality industry average of 18.3x. This suggests that Greggs is good value based on its earnings growth potential.
2. Enterprise Value/Revenue (EV/Sales) Ratio: Greggs' EV/Sales ratio of 1.3x is lower than the peer average of 2.8x and the industry average of 1.55x. This indicates that Greggs is relatively undervalued compared to its peers and the industry.
3. Enterprise Value/EBITDA (EV/EBITDA) Ratio: Greggs' EV/EBITDA ratio of 7.7x is lower than the peer average of 17.45x and the industry average of 11.57x. This suggests that Greggs is undervalued based on its cash flow and earnings potential.
4. PEG Ratio: Greggs' PEG ratio of 2.62 is lower than the peer average of 2.21 and the industry average of 2.21. This indicates that Greggs is undervalued based on its earnings growth and price-to-earnings ratio.

Greggs' earnings growth is primarily driven by its expansion strategy, which involves opening new stores and relocating existing ones. As of 28 September 2024, Greggs had 2,559 shops trading, and it plans to open 140-160 net new shops in 2024, including around 50 relocations. This expansion strategy allows Greggs to increase its customer base and revenue, contributing to earnings growth.

Another key driver of Greggs' earnings growth is its ability to maintain strong like-for-like sales even in challenging market conditions. For instance, despite the weather in July and riots across England in August 2024, Greggs still managed to achieve a 5% increase in like-for-like sales in company-managed shops. This resilience in sales growth demonstrates the strength of Greggs' brand and its ability to adapt to changing market conditions.



In conclusion, Greggs' undervalued stock price, driven by its strong financial metrics and growth prospects, presents an attractive investment opportunity for those looking for value in the UK Hospitality sector. The company's expansion strategy and resilience in sales growth suggest that Greggs is well-positioned to continue its long-term growth trajectory. However, investors should be aware of potential risks, such as market saturation and changes in consumer behavior, and monitor Greggs' progress closely to ensure that the investment thesis remains valid.