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It’s fair to say that holders of Greggs (LSE: GRG) shares aren’t having the best of times. While other FTSE stocks have absolutely soared in 2025, the sausage roll seller has seen its value crash by 40%. Surely things won’t get any worse?
Well, I’ve noticed something that might be rather concerning for anyone still holding on.
Worrying development
Whenever I’m researching an out-of-favour stock, I always make a point of checking how much shorting activity there is surrounding it. In other words, I look to see whether a proportion of traders are betting that the share price has further to fall.
Unfortunately, this seems to be the case with Greggs. In fact, it’s now the sixth-most-shorted stock in the entire UK market. That’s quite a switch in sentiment from a year ago when the stock traded above the 3,000p mark.
But is this pessimism justified? To some extent, I think it is.
We already know that the sizzling summer in the UK was not good news for sales of equally-hot treats. As expected, trading suffered and questions surrounding the FTSE 250 member’s ability to continue expanding resurfaced.
The next couple of months of trading will clearly be very important as the company looks to capitalise on the return of colder weather and more people hitting the high streets and retail parks to do their festive shopping.
But with consumers continuing to feel the impact of higher prices, it’s questionable whether even the Greggs value offering will be sufficiently enticing.
Reasons to be optimistic about the shares
As always, it’s vital to take a balanced approach when evaluating any investment.
Having once boasted a valuation as rich as one of its pasties, the shares now trade at a far more reasonable valuation. A price-to-earnings (P/E) ratio of 14 is on par with the UK market average. It’s also below the firm’s average P/E over the last five years (28).
So, we could say that a fair bit of bad news might already be priced in. The key word being ‘might’.
There’s a 4% dividend yield too. And assuming analyst projections aren’t wide of the mark, those cash distributions also look easily covered by expected profit.
Short sellers can also be wrong. If CEO Roisin Currie reveals even a slightly-better-than-anticipated set of numbers in January, Greggs shares could post a tasty rise. This is because those betting against the firm may rush to close their positions (by buying back the stock they ‘sold’).
Whether that momentum comes and lasts is another thing entirely, of course. Still, it’s worth noting that the shares have experienced quite a few dips over the last five years before bouncing back to form.
Here’s what I’m doing
I’ve made no secret of my love for the £1.7bn cap. This is partly because it’s made me a lot of money over the years. Having sold out in 2024 when the valuation started to look frothy for a pretty unglamorous (albeit high-quality) business, I’m keen to get involved again.
But the price needs to feel right. Moreover, the level of shorting activity around this company isn’t something I can recall seeing before. And it’s given me pause for thought.
I’m prepared to stay my hand for a while longer, at least until the end of the year.
