If an investor had bought Greggs (LSE:GRG) shares two month after I was born — that’s when the LSE introduced its SEAQ (Stock Exchange Automated Quotation) system — they’d have done rather well for themselves.
In short, the stock is up 3,424% since May 1993. That means that £10,000 invested then would be worth £352,400 today. For context, the price for the average UK home has increased by 388% over the same period. So, buying Greggs shares would have been a great way to outperform the housing market.
While frequent readers may know that I’m not a fan of Greggs shares, the above example does go to show the importance of taking a long-term perspective and investing in sound businesses.
Of course, the thing is that investors should still seek to buy these solid companies at the right price. Sometimes that can be challenging in bull markets, and sometimes it can be unnerving in bear markets.
Here’s why I think Greggs is still overvalued
Greggs still appears overvalued despite the recent share price correction. The forward price-to-earnings (P/E) ratio remains elevated at 15.4 times in 2025 and only gradually declining to 14.3x by 2027.
These multiples are high for a mature UK food retailer, especially given the company’s earnings outlook. Consensus forecasts point to a 10% earnings decline in 2025, with only a modest recovery by 2027, bringing earnings per share back to roughly 2024 levels.
The P/E-to-growth (PEG) ratio reflect this tepid growth. Excluding the 2025 drop, the PEG sits around 3.5. That’s well above the benchmark of one that typically signals fair value.
Debt is a manageable but growing concern. Net debt is forecast to rise from £289.8m in 2024 to £374.6m in 2025, remaining above £350m through 2027, which increases financial risk and limits flexibility. While the dividend yield is forecast to rise to 3.6% by 2027, and payout ratios remain around 50%, this does little to offset the valuation premium.
Adjusting the PEG for both dividend and debt, the combined debt and dividend adjusted PEG remains well above two for the forecast period, reinforcing the view that Greggs is still priced for more growth than its fundamentals support.
The shares may appeal to income investors, but the valuation still looks stretched to me, given the muted growth and rising leverage.
Secular trends
Greggs performed really well during the cost-of-living crisis. It’s clear that the company had a value proposition that really appealed to people in this challenging period.
However, Greggs’s like-for-like sales has come under pressure in the period following the cost-of-living crisis. And that may point to the fact that it’s not particularly aspirational, and that people made avoid the retailer if they can.
Why might that be the case? Well, simply, there are healthier options available. Personally, I believe to movement toward healthier eating is an under-appreciated trend. Going forward, this could hurt Greggs.
Needless to say, I’m not running to buy Greggs shares.
