Over the last year Greggs (LSE:GRG) did not perform well on the stock market. The Greggs share price has fallen by 23% in just 12 months.

It is down 51% since the end of 2021. But I’m buying this stock because I think it’s undervalued and could take a substantial hit in the coming years.

I actually think it could potentially happen double values ​​over the next five years.

Why Greggs failed

Before I get into the basics of my optimism, what went so wrong at Greggs?

Understanding that it matters. I believe that for Greggs’ share price to rise significantly, the company will need to show significant progress on all or some of the city’s issues.

With approximately 33,000 employees, rising social security and payroll costs pose a problem for the company’s bottom line.

A misjudgment of product mix this summer led to a profit warning. This damaged trust in management and also raised questions about how relevant Greggs’ product offering was to customers. These concerns have deepened with the increasing operate of weight loss drugs.

This raises wider concerns about whether Greggs is starting to reach the limits of its growth potential. Since there are already thousands of stores, sales growth is driven more by recent store openings than by improved same-store sales.

However, there is much more open space for recent stores before Greggs reaches saturation point in the UK market.

I still see a lot of things I like here

Still, while I see some of these risks as substantial, I think the bigger picture remains positive.

Greggs has been testing its business model for decades.

It enjoys significant economies of scale and national brand awareness.

Good value never goes out of style, even when the economy struggles and consumers become more price sensitive. Therefore, I believe that the business has continued potential to thrive.

Development can bring efficiency, helping to augment profits. Meanwhile, Greggs’ value proposition and proven marketing skills could facilitate drive sales, as it has done in the past.

The existing shop estate also offers considerable development opportunities.

In the past, Greggs has been seen as a lunch or breakfast destination, but I think expanding the evening offering to include convenient dinner options could prove to be a great success in the coming years.

Could the price go up from here?

Greggs currently trades on a price-to-earnings (P/E) ratio of 12.

If it can get back into forceful growth mode, I believe it could justify a P/E ratio in the teens. This could mean a Greggs share price 50% or more higher than it currently is.

However, if earnings per share also augment sufficiently, this P/E ratio could mean that the share price is actually twice its current level.

Stores are currently increasing sales, although quite modestly. The opening of recent stores will facilitate with this. Opportunities such as expanding your evening business can also augment your earnings. Moreover, cost efficiencies such as centralizing more production can facilitate improve profitability.

Given the risks I mentioned above, the Greggs share price may even decline.

However, if the company implements its plans well, I see credible reasons for doubling it in the coming years. Meanwhile, the profitability is 4.2%.