The market continues undervaluing the strength of Greggs’ (LSE: GRG) long-term growth story, leaving its shares looking cheap to me.
Its steady expansion, resilient demand, and proven ability to grow profits all point to a higher fair value than today’s price suggests.
For investors, that gap between fundamentals and valuation could offer meaningful upside over time. So how much exactly?
What does the growth engine look like?
Much of the answer depends on the firm’s earnings growth over the coming years, as it does with all companies.
A risk to these for Greggs is that rising costs — from ingredients to wages — could squeeze its margins. Another is increased competition in the food‑to‑go market that could do the same.
Nevertheless, analysts forecast Britain’s biggest fast-food chain’s earnings will grow at an annual average 14.2% over the medium term at least.
In this context, its full-year 2025 results published on 13 April saw record sales of £2.151bn. The achievement was driven by steady like-for-like growth of 2.4% and the opening of 121 net new shops.
This in turn highlighted good results from higher‑traffic formats, including travel hubs and retail parks. It also reflected rising earnings from digital channels such as click and collect.
Meanwhile, business-to-business revenue jumped 9.2% to £254m, powered by growing momentum in grocery and franchise partnerships.
These drivers highlight to me a business expanding its strategic footprint and delivering top-line growth, despite short-term cost pressures.
What’s the stock’s true value?
In the stock market, price and value are entirely separate ideas. Price is simply the level at which buyers and sellers choose to trade at a given moment. But value reflects the true economic strength of the underlying business.
For long‑term investors, that distinction is vital because asset prices tend to move towards their ‘fair value’ over time. That is why understanding the price-to-value gap is such a powerful tool for generating outsized long-term profits.
To estimate fair value, discounted cash flow (DCF) analysis forecasts future cash flows for an underlying business, before discounting them back to the present. The more uncertain those forecasts are, the higher the return investors demand, increasing the discount rate.
Analysts’ DCF valuations may vary in line with the assumptions they use. But based on my own framework — including a 9.5% discount rate — Greggs’ shares look 49% undervalued at their current £17.37 price.
That implies a fair value of £34.06, nearly double the current level. If markets continue to converge toward fair value, this could be an excellent buying opportunity if those DCF assumptions prove correct.
My investment view
Taken together, the growth momentum, strong cash generation, and expanding footprint point to a business with real long‑term potential. The valuation gap only strengthens the case, suggesting the market has not yet fully recognised the company’s progress.
For investors willing to look beyond short‑term cost pressures, the long‑term growth story remains intact and looks a compelling prospect to consider, I think.
I already have a holding in the food sector — Marks and Spencer — so buying another would unsettle the risk/reward balance of my portfolio. But I do have my eye on other similarly deeply discounted shares, some of which have high dividend yields too.
Should you invest £5,000 in Greggs Plc right now?
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Simon Watkins owns shares in Marks and Spencer.
