Greggs (LSE: GRG) shares were once red hot but lately, they’ve cooled faster than a sausage roll in a snowstorm. Where did it go wrong for the once all-conquering FTSE 250 bakery chain?
Greggs brilliantly transformed itself from a regional high street baker into a national food-on-the-go giant. Investors loved the rapid store rollout, booming sales and cult products such as the vegan sausage roll. The share price soared as profits climbed relentlessly. In 2024, Greggs traded on a meaty price-to-earnings (P/E) ratio of around 23, while the yield sank towards 2% as investors chased growth.
Where did it go wrong for this FTSE 250 high flyer?
Total revenues are still growing but like-for-like sales slowed as the cost-of-living crisis hit shoppers. Inflation drove up the group’s food costs and energy bills, while employer’s National Insurance and minimum wage hikes squeezed company margins. Investors also started asking whether Greggs was finally approaching saturation point after years of rapid expansion.
Its 2025 full-year results (3 March) showed total sales up 6.8% to £2.2bn, helped by 121 net new store openings. However, like-for-like sales in company-managed shops climbed just 2.4%. Free cash flow dropped from £104m to £75m as Greggs spent heavily on expansion and two new distribution centres. Its net cash position also fell by £80m to £46m.
Reflecting these troubles, management froze the total 2025 dividend, a big disappointment after years of mouth-watering growth.
- 2025 – 69p per share
- 2024 – 69p per share
- 2023 – 62p per share
- 2022 – 59p per share
- 2021 – 57p per share
Today, the P/E has fallen to just 14.2 while the yield has climbed to roughly 4.1%. And it looks like investors are waking up to the buying opportunity.
Let’s say somebody had invested £2,735 in Greggs shares one week ago. That’s £1 for every Greggs store. The stock has jumped 13.7% since then to 1,681p. Their stake would now be worth £3,110, ignoring charges. A gain of roughly £375 in a week isn’t bad going. Of course, it’s the long-term that matters. So how does that look?
Greggs certainly tempts at today’s valuation. It continues to sell huge volumes of pastries, sandwiches and drinks. Greggs plans to push towards 3,000 stores over the next few years, with another 120 net openings expected in 2026. It’s adapting menus, extending evening trading hours and moving into travel hubs. But the wider outlook remains sticky.
Can the stock get its mojo back?
Inflation is climbing due to the Iran conflict. That squeezes shoppers while also increasing Greggs’ own costs. Management may struggle to pass on such costs to cash-strapped customers, especially as unemployment rises.
I also think Greggs has lost some of the cult excitement that once powered the shares higher. I wouldn’t expect it to become the explosive growth monster it once was. But I do think today’s lower valuation and higher yield offer investors something tasty to chew on today and is worth considering.
Harvey Jones has no positions in the shares mentioned. The Twelfth Magpie has recommended Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor and Hidden Winners.
