Greggs (LSE:GRG) shares have had a torrid 24 months. Those who invested at the peak have now lost half of their original investment. The sausage roll institution of the British high street has gone from stock market darling to something investors scroll past.
But the big question is whether it’s now being overlooked. Many investors won’t consider stocks that have poor momentum — consistently moving in the wrong direction — however, this can be where the best value stocks are found.
So, has the fall finally created a buying opportunity? My honest opinion is: not yet.
Not as cheap as it looks
On a forward price-to-earnings ratio of 12.9 times, Greggs looks reasonable. But headline multiples can flatter a stock. The analyst consensus is forecasting earnings per share (EPS) of 125p for 2026 — lower than the 133p delivered in 2025 and well below the 144p earned in 2024.
This isn’t a growth stock temporarily on a trough multiple. It’s a company whose earnings are still heading in the wrong direction.
The price-to-earnings-to-growth (PEG) ratio isn’t available because you can’t calculate it when forecast EPS growth is negative. This can be a sign of a value trap.
What’s more, price-to-free cash flow sits at 32 times. For a mature UK bakery retailer, that requires a justification I haven’t found.
It might be time for investors to stop thinking about Greggs as a fast-growing chain, and more like those slow-moving tobacco stocks that are doing well to tread water.
And then there’s the balance sheet
Net debt has ballooned from £85m in 2021 to £404m today — nearly a fivefold increase in four years. Cash on the balance sheet has fallen from £199m to just £71m. Working capital has swung from a positive £59m to negative £152m.
When we factor this into the earnings metrics above, it confirms my belief that the stock really isn’t that cheap at all. Net debt is equal to around three years of next profit. It’s not a worrying amount of debt, it’s just noteworthy relative to earnings and market cap.
Capital expenditure has exploded from 53p per share in 2021 to 278p last year as Greggs pushes into evening trading, delivery, and new store formats. The consequence is that free cash flow has collapsed from 225p per share to around 50p.
The bottom line
Some investors will undoubtedly be attracted to the 4.3% dividend yield. It’s a little better than the yield you’d get on a Gilt, but I’m still not sure it’s worth the risk.
That’s because there’s also a structural issue that doesn’t show up in any spreadsheet. Greggs built its brand on cheap, indulgent, calorie-dense food. That’s a harder sell in a world slowly moving toward healthier eating habits. It may not matter this quarter. Over a five-year investment horizon, I think it matters more.
Greggs is a fine business with genuine brand loyalty. But I just don’t believe the numbers add up, and I don’t believe it’s well positioned for the future. I don’t believe it’s worth considering.
