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It doesn’t feel controversial to say Greggs (LSE: GRG) shares have disappointed investors in 2025. As I type, the value of this one-time stock market darling has tumbled almost 40%. That has to sting given that the FTSE 100 is up nearly 20% over the same time period.
Even the UK-focused FTSE 250 index — which features the food-on-the-go retailer — is up 8%.
Could there be even more pain on the way for holders in 2026?
Tough sell
The plight of Greggs isn’t a mystery. Put simply, like-for-like sales growth has slowed. For years, such a thing was unthinkable for the sausage roll seller.
At least some of this decline is down to a seriously hot UK summer. When temperatures were high, the last thing people wanted to munch on was a warm pasty.
The wider economic environment hasn’t helped. Greggs may be targeting budget-conscious consumers but it doesn’t seem to have escaped the reduction in discretionary spending as people try to keep their heads above water.
Combine all this with increasing costs — such as higher National Insurance contributions — and it was almost inevitable that profit warnings and cuts to expectations would follow.
Is the worst over?
Despite all this bad news, CEO Roisin Currie announced in October that business had improved in the previous two months. Full-year guidance was also retained, even though sales growth had continued to decline.
Broker JP Morgan is now a believer, setting an Overweight rating on the stock at the beginning of December. In its view, the company is well positioned to benefit as many of its peers struggle. A price target of 2,110p has been set — 22% higher than where it currently stands.
I think most holders would be pretty happy if that came to pass. The share price has already rebounded 17% in the last month.
This brings me to another thing that supports the investment case as it stands today…
Greggs shares ‘look’ like a bargain
This stock is an awful lot cheaper than it once was. We’re talking about a price-to-earnings (P/E) ratio of 14 for FY25. For comparison, the P/E was high as 30 in 2024.
Greggs’ current valuation might now be on par with the long-term average among UK stocks but, personally, I think it’s an above-average business. While margins and returns on capital have been sliding, they’re still more than satisfactory. The core business model remains solid too.
For those that like passive income, the dividend yield sits near 4%.
A favourite with short sellers
Not everyone is convinced. Greggs is currently the most shorted stock in our home market. In other words, a significant number of traders are betting that the share price has further to fall. This is hardly a good sign.
Short sellers can be wrong, of course. If the £1.8bn cap puts out a better-than-expected update on Q4 on 8 January, we could see a rush to close their positions. This might just lead to an almighty rise in Greggs stock on the day and mark a great start to 2026.
But a poor set of numbers could easily undo the positive momentum witnessed in the last few weeks.
As things stand, I’m happy to sit on my hands for a while longer.
