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So far, 2025 has been anything but tasty for baker Greggs (LSE: GRG). The share price has crashed 44% since the start of the year. For now at least, there is no obvious sign of even the start of a recovery in the share price.
That has pushed the sausage roll maker’s dividend yield up to a tasty 4.4%.
It also means that Greggs’ share price is at levels last seen during the pandemic back in 2020. Its share price-to-earnings ratio of 11 looks low to me and I have been buying the share repeatedly this year.
Shares rarely crash for no reason
The poor share price performance of late has not happened randomly. The company’s shock profits warning in the summer raised questions about management competence and nimbleness.
It had been hot, Greggs said, so profits were suffering. But a hot summer can see demand surge for products Greggs sells, from cold drinks to room temperature snacks. Maybe the real problem was not the weather, but the company’s preparation for it.
Meanwhile, the company is at the sharp edge of a number of challenging developments, from rising staff costs and higher National Insurance contributions to ongoing sluggish footfall in many high streets.
Taking the long-term approach
Those are all meaningful risks and management’s recent stewardship of the business has not improved my confidence.
But those risks look like ones that Greggs can work around. Its competitive pricing gives it scope to recoup higher costs by raising prices, for example, while it has also been extending its shop footprint beyond high streets.
To be sure, I see some potential own goals too. I fear that a proposed tie-up with Tesco could simply move sales away from Greggs’ own shops. A few barely lukewarm pastries on my own visits to Greggs this year have left me wondering whether it is delivering on its own value proposition fully.
But I am a believer in long-term investing. Over the long term, demand will be high for competitively priced, convenient food. Greggs has thousands of shops (with the potential to open more), a focused strategic approach on one market (the UK), a proven business model and strong brand.
Over time I think it does not even need to do that much right, if it can just stick to its knitting and avoid getting things wrong.
Looks like a bargain to me
On that basis, I reckon the current Greggs share price looks cheap for a business I see as having substantial long-term value.
There may be bumps along the way, but that is part and parcel of long-term investing. I reckon Greggs is a brilliant business battling a few passing challenges, but the stock market reaction this year has been treating it like a business with deep-rooted, far-reaching problems.
Time will tell which view is the correct one – but I have used my money to buy Greggs shares, optimistic as I am that the long-term outlook is rosy.
