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Investors in Greggs (LSE:GRG) haven’t had much to celebrate for a while, with the shares down nearly 41% since the start of 2025. Yet the struggling FTSE 250 stock has enjoyed a strong uplift recently, rising 15.6% in just the past week.
This means someone who invested £5,000 in Greggs seven days ago would now have almost £5,800.
But what has happened to cause this bounce? And does the stock still look cheap today?
Enter activist investors
The reason for the stock’s leap appears to be related to activist investors. One is hedge fund Silchester International Investors, which disclosed a 5% stake on 27 November, becoming the bakery chain’s largest shareholder.
Another is David Mercurio of Singapore-based hedge fund Lauro Asset Management. According to The Times on 29 November, he said Greggs should try cutting at least £20m of annual costs and buy back shares. He called management “timid” for not doing so.
The best way to highlight [CEO] Roisin’s insistence that ‘I absolutely don’t believe we have reached peak Greggs’ is through a comprehensive buyback programme. With little, if any, financial debt on the balance sheet, Greggs is now a clear outlier within the UK retail industry as one of the few operators with no buyback. David Mercurio.
Lauro Asset Management also said that with robust future cash flow generation to come following the current investment cycle, a “pristine” balance sheet, and the valuation at a multi-decade low, Greggs is at risk of being snapped up on the cheap.
Mercurio warned that private equity is particularly “well suited to look through the current malaise“. And Greggs’ management should step up to protect this “iconic British brand“.
Finally, according to the Short Tracker site, Greggs is the the most shorted London-listed stock. This means plenty of investors are betting that Greggs stock will keep going down.
So what might be happening here then is a short squeeze. This is where a share price jump forces short sellers to buy back shares quickly, pushing the price even higher. If so, this squeeze might have a little bit further to run.
We’re at peak capital expenditure
On 27 November, I wrote that I thought Greggs was attractively priced, and I still think that after the near-16% rise. The stock is trading at just 0.8 times sales and a little over 12 times forward earnings. Meanwhile, there’s a well-supported 4.4% dividend yield on offer.
Granted, I don’t expect the stock to return to 25 times earnings like before. Because the cost-of-living crisis isn’t ending anytime soon, while the government may yet bring in more business tax hikes and/or regulation.
Within the next 18 months though, Greggs is set to open two brand new state-of-the-art facilities in the Midlands. This will support as many as 3,500 shops, up from 2,649 at the end of June.
2025 will be the peak investment year of this programme. As such, management says higher cash generation starting in 2027 will support possible special dividends and share buybacks.
Given the very low valuation and activist pressure though, I wouldn’t be surprised if buybacks are on the menu in 2026. And I think the starting 4.4% yield continues to look attractive.
Looking around the FTSE 250 today, I see many dirt-cheap stocks to consider, including Greggs.
