No. of Recommendations: 4
Thank you for sharing. However, this article seems a little unserious...
> "Presently, their gross margin is 61.7%, but this is down from 63.6% at the start of 2022. A declining gross margin is usually a sign of deteriorating business dynamics (rising cost of raw materials) or of eroding pricing power, or at least the inability to raise prices to offset these increasing costs. On the surface at least, these are signs of a company in decline"
When the price of a stock drops by more than half, and the gross margin goes from 64 to 62%, you should be paying more attention to the huge variation in the price and less to the tiny variation in the gross margin. For such a small change, you also have to look at issues like noise in the data and general economic malaise etc. I mean, could be real, probably is, but the stock's half the price it was.
> "they may be forced to ... issue shares" "dilution"
...eh? what?
Then two huge paragraphs to big up the fear of revenue cannibalisation, ending with:
> "if we crudely assign equal revenue across shops, we get a figure of 0.172% of the company’s total 2024 revenue as being cannibalized."
Scary numbers indeed.
The whole article can't seem to decide if Greggs is growing so insanely fast that it's eating its own tail, or not growing at all and never will again.
Also seems to be focused on earnings growth when the investment case today is that the stock is on a p/e of 10-11 and doesn't *need* heaps of growth to be a compelling investment. IIRC Jim had a heuristic along the lines of, if you roll up divis and growth on a stock over the next 5 years and it will likely be on a single digit P/E in 5 years time based off the current price, it's probably alright.
Overally I found the text exhauting, waffly and clutching at straws. A rather desperate bear case.
If the stock was still up at 2500p-3000p or whatever it might be worth worrying about fine details, but not at 1400p. Reading through the mountain of waffle, my main concern is 'is this paragraph discussing a genuinely serious issue and if so, is it likely priced in'.
I saw nothing to concern me here, from that perspective.
I note that for all the talk of Greggs being unable to compete with McDonalds, during their trip, the author actually kept going back to Greggs again and again as the affordable and tasty choice (opening paragraph).
TRS
