Greggs‘ (LSE: GRG) shares might be the most volatile on the entire London Stock Exchange. The share price has fallen 10% in March, following a 19% rise in the run-up to Christmas. Looking further back last year, the shares jumped 16% last May after a 25% fall in January. Each of these declines is hardly small change – we’re talking shifts of hundreds of millions of pounds in market capitalisation.

Such wild swings are often the sign of irrational movements in the market, which can offer some of the best times to buy undervalued shares. As billionaire investor Warren Buffett’s famous stock market maxim goes: “Get greedy when others are fearful and fearful when others are greedy”. So which is it with Greggs shares at the moment? Time to get fearful or greedy?

The first thing to bring attention to is the current downswing. An investor who put £3,000 into Greggs just over two weeks ago has lost over £300 – it’s now worth £2,654. And while there have been endless ups and downs in the last few years, the general trend’s clear: the shares are losing value. Since 2022, Greggs’ share price is down 55%.

Further to fall?

What happened? The simple answer is that this still-expanding bakery chain has had the brake slammed on by a combination of factors.

Greggs is still growing, by the way, in revenues at least. In the last financial year, like-for-like sales went up 5.5%. The key detail? Profits are flat. Input costs like inflation and wages are going up and that’s squeezing the margins. The recent conflict in the Middle East threatens to increase inflationary pressure too. This could be a long-running problem for the FTSE 250 firm.

All this might be why Greggs is one of the most shorted stocks in London. Only Wizz Air has more short interest as of late March. Around 13% of shares being shorted suggests a lot of investors think there’s money to be made from the share price falling further.

Positives

Are there any positives here then? Yes, I’d say there are plenty. The first is a chance to buy into a growing company with a surprisingly high dividend yield (4.6%) and a below-average price-to-earnings ratio (12).

And while inflation’s squeezing margins, it could help Greggs too. The bakery is pound-for-pound about the cheapest place to pick up some grub on the high street. And with locations expanding to airports and extending opening hours into the evenings, we could see more opportunities for thrifty diners to spend their cash.

There’s good news from the Greggs’ app too. Now over 20% of all transactions are done through a smartphone or other device – and the figure’s growing. These apps can be used to send promotions or adverts to customers to keep them coming back for more sausage rolls and pasties.

The stock market has shown that in times of panic, there will always be ample opportunities to buy cheap shares. Will Greggs end up being one such stock? Only time will tell, but I’d say it’s worth considering.