With warm summer days upon us, it feels like a suitable moment to look at how Greggs (LSE: GRG) shares are doing. After all, it was an unexpected hot weather-related profit warning in early July last year that shook some investors’ confidence in the investment case for Greggs – and led others to snap up some shares in the baker at what they thought was a bargain price.
The company’s interim results are due later this month. Meanwhile, how have those bargain hunters from a year ago fared so far?
This share continues to disappoint
In short, not well.
Over the past 12 months, Greggs shares have fallen in value by 7%. So, £5k invested back then would be worth around £4,650 now.
That compares to a 9% gain for the FTSE 250 index (of which Greggs is a member) during that period.
There is at least some consolation in the form of the dividend. At the moment, the baker has a tasty dividend yield of 4.3%. That is ahead of the FTSE 250 average, currently standing at 3.5%.
So £5k invested in Greggs shares a year back ought to be generating a little over £200 in dividends annually.
Still, even taking dividends into account, that investment would currently be showing a loss.
2026 seems to be going well
Yet while the share price has been heading downwards, Greggs has been doing well as a business, in my opinion.
Indeed, I have taken advantage of what I see as its price weakness over the past year to buy some shares.
I expect the interim results this month to be fairly upbeat. In its most recent trading update, in May, the company said that sales for the first 19 weeks of the year were up 8% year on year. That was helped by new shop openings, but sales also grew on a like-for-like basis.
Having shared that information and maintained its outlook for the full year, it may seem as if Greggs shares ought already to reflect this state of affairs.
In reality, though, I perceive a disconnection. The company’s sales have been growing, but its share price is down.
Here’s my take – and move
Unfortunately, it is hard to see any short-term trigger for a significant upwards move in the Greggs share price.
I reckon that if business continues on its current trajectory, the price may not get back to where it once was any time soon. After all, the shares have lost two-fifths of their value over the past five years.
I believe risks including inflation eating into profit margins are also helping keep the price down.
From a long-term perspective though, I now see the share as undervalued. Greggs is a proven business with a simple but profitable business model, economies of scale and ongoing growth opportunities in the UK market.
I do not know how long it will take for the share price to come closer to what I think would be a fair valuation for the business.
But I am optimistic that that will happen at some point and have no plans to sell my shares. Meanwhile, hopefully, I will keep earning dividends while holding the stock.
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Christopher Ruane owns shares in Greggs.
