Shares in FTSE 250 fast-food retailer Greggs (LSE: GRG) have loved a meteoric rise over the previous 5 years.

Powered by a seemingly insatiable demand for its steak bakes and sausage rolls, amongst others, the inventory has soared 150% since then.

Nevertheless, since their 20 September 12-month traded excessive of £32.24, the shares have misplaced 11%. So, does this characterize a golden alternative to purchase right into a Nice British success story at a knockdown price?

Are the shares undervalued?

My first step to establish whether or not the shares are genuinely underpriced is to have a look at key inventory valuation measures.

I often begin with the price-to-earnings ratio (P/E) and on this Greggs at the moment trades at 20.6. The typical P/E of its competitor group is 25.1, so it appears to be like considerably undervalued on that foundation.

These friends encompass J D Wetherspoon at 17.9, Whitbread at 19.5, McDonald’s at 26.8, and Mitchells & Butlers at 36.1.

Greggs appears to be like much more undervalued on the important thing price-to-sales ratio (P/S). It presently trades at 1.5 in comparison with its rivals’ common of two.9.

So the shares do certainly look underpriced to me at their present £28.69 stage.

How do current outcomes look?

Third-quarter outcomes evidently disenchanted many buyers because the share price fell 5% after they have been launched on 1 October.

I believed the market response was manner overdone. Sure, like-for-like gross sales within the interval have been decrease than the 7.4% rise in H1. However they have been nonetheless up 5%! The interval additionally coincided with rioting in a number of areas serviced by Greggs, because it highlighted within the outcomes report.

The agency has additionally managed to open a internet 86 outlets year-to-date and is on observe to open 140-160 in complete this 12 months.

Its H1 outcomes confirmed underlying pre-tax revenue up 16.3% to £74.1m, with complete gross sales up 13.8% to £960.6m. Underlying diluted earnings per share rose 15% over the interval to 53.8p.

A threat for Greggs is a resurgence within the cost-of-living disaster that may dent its buyer spending over a number of quarters.

Nevertheless, consensus analysts’ estimates are that its earnings will develop by 7.5% yearly to the top of 2026.

Will I purchase the shares?

I’ve centered on shopping for undervalued high-quality, high-yielding shares since I turned 50 some time again. The goal of that is to generate adequate dividend revenue for me to proceed to scale back my work commitments.

Greggs is definitely undervalued so far as I’m involved, so it meets the primary criterion. It is usually high-quality, with good earnings progress each behind and forward of it, I believe – so it meets the second too.

It’s on the third the place it falls down for me. Final 12 months, it paid a complete dividend of 102p, together with a particular cost of 40p. With this included, it yields 3.6% on its present £28.69 share price. Excluding this cost, it yields 2.2%.

Analysts forecast that the yield will rise to 2.7% in 2025 and to 2.9% in 2026, excluding particular funds.

That is nowhere close to the 9% common annual yield I obtain from my core high-yield shares. So Greggs shouldn’t be for me at my current part within the funding cycle.

Nevertheless, if I have been at an earlier stage – even 10 years youthful – I might purchase it for its glorious progress prospects and important undervaluation.