Interactive Investor

eyeQ: Greggs shares flash health warning for investors

interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to generate actionable trading signals. Here's what it says about this popular high street baker.

5th March 2024 11:41

Huw Roberts from eyeQ

"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ

Greggs

Trading signal: strategic long-term model

Model value: 2,606.58p

Fair Value Gap: +8.86% premium to model value

Model relevance: 73% 

Data correct as at 5 March 2024. Please click glossary for explanation of terms.

Sausage rolls 1, Spring wardrobe 0

Today, the British Retail Consortium survey painted a gloomy picture of the UK consumer - February’s retail sales grew at their slowest rate in 18 months which was blamed on wet weather.

In contrast to that, fast-food chain Greggs (LSE:GRG) released annual results showing profits beating estimates by a significant margin enabling the company to raise its dividend. The weather may have stopped British consumers buying Spring / Summer clothes, but sausage rolls sales are booming. Greggs’ stock price rallied around 3.5% immediately after results.

But eyeQ has a health warning for investors. Greggs already screened as rich to macro conditions, according to eyeQ’s smart machine. This rally has now pushed our Fair Value Gap ( the difference between our model value (fair value) and where the price currently is) to 8.86% - the biggest premium versus overall macro conditions we’ve seen in over a year.

Macro relevance (how confident we are in the model value) is 73%, which means the big picture stuff like economic growth and inflation is important to the share price.

This is not to dispute today’s earnings. The baker is producing goods that continue to see strong demand despite the UK’s cost of living crisis. Indeed, this could be an example of “affordable luxury”. Economists sometimes talk about the lipstick effect – sales of lipstick often do well during times of economic hardship, representing affordable luxury while bigger ticket purchases are cancelled.

The point is simply that, from a pure macro perspective, a fair amount of the good news is in the price here. Even the bulls might want to wait for a correction and a better entry level.  

Source: eyeQ. Past performance is not a guide to future performance.

Useful terminology:

Model value

Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.

Model (macro) relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.

These third-party research articles are provided by eyeQ (Quant Insight). interactive investor does not make any representation as to the completeness, accuracy or timeliness of the information provided, nor do we accept any liability for any losses, costs, liabilities or expenses that may arise directly or indirectly from your use of, or reliance on, the information (except where we have acted negligently, fraudulently or in wilful default in relation to the production or distribution of the information).

The value of your investments may go down as well as up. You may not get back all the money that you invest.

Equity research is provided for information purposes only. Neither eyeQ (Quant Insight) nor interactive investor have considered your personal circumstances, and the information provided should not be considered a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised financial adviser. 

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

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In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.