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The Greggs (LSE:GRG) share price has fallen hard. And while operational performance has a lot to do with the price action, I’d also speculate that it has a lot to do with retail investors and their interest in the sausage roll maker.
As investors, we often start by investing in what we know. Some of the most popular stocks among retail investors are the ones we see on the high street like Tesco, Lloyds, and of course, Greggs.
This doesn’t necessarily mean that they’re good investments, however. Tesco and Lloyds shares have surged since the height of the cost-of-living/inflation/rising interest rates crisis, but Greggs shares have been on a roller-coaster ride.
The truth, in my opinion, is that Greggs shares never deserved the premium valuation they were afforded last year. Investors potentially got too excited to see shares in a company they knew doing well, and overlooked the fact that growth had already plateaued.
It should be a lesson to many of us as investors. We need to look at the metrics behind the stock as well as the fundamental growth drivers. Thankfully for me, Greggs has long been on my avoid list.
Things have changed
Personally, every investment I make is based on valuation metrics. This really should be the case for most investors. However, it’s important to acknowledge that the value proposition at Greggs has changed markedly over the past 12 months.
With the stock 41% down over 12 months, it’s actually trading at a discount to the FTSE 100 (which it’s not part of) average on a price-to-earnings (P/E) basis. The stock is currently trading at around 13.6 times forward earnings (down from as high as 25 times last year).
Looking forward, that figure falls to 12.8 times in 2026 and 12.3 times in 2027. These are figures based on today’s share price. So, there’s clearly growth, but not much of it.
The stock also offers a rather attractive 4% dividend yield. However, the forecasted dividend growth is very minimal.
So, what do we have? Well, it was a company that was clearly mis-categorised as a high-potential growth stock. Now, it looks more attractive on paper.
Would I invest today?
The equation has changed totally. But my concerns about the business remain. Sausage rolls are not a high-growth product, and the stores are already everywhere across the UK. They’re tried going overseas… it didn’t work.
The company is now introducing healthier options and catering for the rather large number of people taking GLP-1s. However, that could introduce an element of ambiguity about the brand and what it really represents.
Nonetheless, I still believe healthy is the way to go, but it just might be hard for Greggs to make that u-turn. All considered, I still don’t believe the stock is worth considering. There’s not enough for me to get excited about, and there’s nothing in the forecast that tells me the stock will definitely go higher.
