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Greggs‘ (LSE: GRG) shares have taken a right old beating. They’ve plunged 20% in the last year and now trade roughly a fifth below their levels set five years ago.
That’s a real blow for investors who had their teeth sunk into the stock, but could intrigue investors who, like me, curbed their appetite for the FTSE 250 stock’s growth spurt. Have we just been presented with a second chance to buy Greggs at a discounted price?
Greggs is a funny old business, and a funny old stock. For years, its reputation took a pasting as a purveyor of unhealthy stodge. Then that sniffy attitude suddenly flipped. Greggs became a symbol of homey, hearty, British essentials many secretly loved, backed by a dash of cheeky native wit. Its vegan sausage roll was seen as a marketing stroke of genius.
FTSE 250 attention grabber
Interest in the stock extended far beyond its size and status. For a while, this coincided with strong expansion in the underlying business. The board capitalised on this and Greggs’ stores started popping up everywhere: supermarkets, retail parks, railway stations and even airports.
Sales grew strongly, and so did the share price, as it appeared to have found the secret recipe to surviving the cost-of-living crisis. Eventually, it all went too far, too fast. As the shares soared, the price-to-earnings (P/E) ratio flew past 22, while the yield dipped to around 2%. I decided the stock was far too expensive, and urged caution.
In the autumn of 2024, the crunch duly came. Sales growth slowed and the steam went out of the stock. Greggs is still a sound business, with more than 2,600 shops and £2bn of annual turnover, just not as exciting as it was. Investors had got carried away during the good times, then overreacted when things got sticky, as investors often do.
Lower price-to-earnings ratio
Now however, the situation looks different. The price-to-earnings ratio is down to just 11. The trailing dividend yield is 4.14%, offering both income and growth potential.
Full-year 2025 sales totalled £2.15bn, up 6.8% on 2024, but like-for-like growth in company-managed shops was only 2.4%. The board expects profits to be flat as consumers continue to feel the squeeze. It’s a worrying world when Britons struggle to afford a cheap sausage roll. Higher Employer’s National Insurance charges and two large Minimum Wage increases have squeezed margins.
Greggs is responding by improving supply chains and expanding capacity, but needs a recovery in consumer confidence to rise again. I’ve been wary about Greggs. While I wouldn’t call it a meme stock, I sometimes think the fuss surrounding it has got a little out of hand.
Yet today, it firmly fits a profile of the type of stock I like to buy: a solid business with loyal customers and a strong brand, temporarily hit by forces beyond its control.
Given today’s lower valuation and higher yield, the shares look well worth considering, and I haven’t said that in some time. But only as a long-term play. The UK economy’s still struggling, high streets are under pressure, and while wages are rising, so is unemployment.
It could be some years before Greggs’ story heats up, so patience is required.
