Greggs‘ (LSE: GRG) shares have taken a bit of a kicking lately, down 13% in the past year. That’s been tough to watch, but zoom out and things aren’t so bad. Over the past decade, they’ve achieved total returns of 90% (with dividends included).
So with the stock now trading at a very low price, is there a chance of recovery — or should investors stay away?
Growth still on the menu
City analysts aren’t expecting fireworks in the next 12 months. Consensus targets point to low double‑digit growth, with one analyst eyeing a potential 19% increase from here. That’s hardly ‘get rich quick’ territory, but it’s not bad for a solid, cash‑generative retailer.
Under the bonnet, the growth story’s still intact. Greggs generated about £2.01bn of revenue in 2024, up 11% on the prior year, with net income around £153m and earnings per share (EPS) of roughly £1.51.
Analysts see sales rising steadily towards the £2.6bn over the next few years, as the estate grows and evening and delivery trade expands. EPS is forecast to climb from about £1.24 to around £1.57 by 2029, implying mid‑single‑digit annual profit growth.
The price-to-earnings (P/E) ratio of 13 is below both its own long‑term average and the wider sector. For a national brand with a 20% return on equity (ROE), that looks decently undervalued, in my opinion.
What the numbers are telling me
I’ll admit, the baker’s latest results are far from perfect. Net margins have fallen to around 5%, down from about 10% before the pandemic. That’s not particularly surprising as profits have been hammered by higher ingredient costs, higher energy bills and rising wages.
Free cash flow has also come under some strain. Heavy investment in a new distribution centres and shop openings means it’s down 70% since 2001.
At the same time, total debt’s climbed from just £283m to £474m, pushing leverage ratios up. None of this is disastrous, but it does increase the risk of defaulting if trading conditions worsen.
Is it worth the risk?
There’s still a moderate chance Greggs turns into a value trap rather than a value opportunity. Stubborn inflation and higher wages would make a recovery tough without scaring off price‑sensitive customers. Free cash flow could remain weak just as debt pushes higher, limiting room for special dividends or buybacks.
There’s also the issue of changing tastes towards healthier food, making it harder to attract younger customers. Competition in this area’s fierce, with supermarkets and coffee chains rapidly updating their products to meet the demand.
Why I’m still holding
Despite those worries, I still have faith in Greggs’ recovery. It fills a very real gap in the high street: quick, cheap, predictable food‑to‑go for workers, students and families watching the pennies. The brand’s strong, the store base is nationwide, and even in tough years the business remains profitable with decent returns on capital.
But success hangs on whether it can refresh its image while keeping its value roots. More coffee, healthier options, better evening offers and a slicker app experience are all steps in the right direction.
If management can pull off that rebranding and let capex normalise, cash flow could recover. That would make today’s low valuation worth considering for long‑term value investors, offering a reasonable shot at attractive returns over the next decade.
