I’m going to be honest. I’ve never understood the hype around Greggs (LSE:GRG) shares. Driven by sausage rolls and steak bakes, the company registered robust sales growth in recent years and appeared to benefit from the cost-of-living crisis as Britons enjoyed Greggs’ attractively-priced, high-calorie treats.
However, business is slowing and the share price has responded accordingly. The stock’s down 21% over three months. As such, a £10,000 investment three months ago would be worth £7,900 today. That’s a really poor outcome. In fact, the stock would need to surge 26.5% to get back to £10,000.
What went wrong?
Greggs stock fell despite it surpassing £2bn in annual sales for the first time in 2024, as investors reacted to a slowdown in like-for-like (LFL) sales growth during the fourth quarter. While total sales rose 11.3% for the year, LFL sales in company-managed shops grew by just 2.5% in Q4, down from 5.5% for the full year. This deceleration was attributed to weaker consumer confidence and reduced high street footfall amid a challenging economic environment.
Although Greggs opened a record 226 new shops and maintained confidence in its growth strategy, concerns about ongoing headwinds, including subdued spending and high street challenges, likely weighed on market sentiment. Investors may have been cautious about the company’s ability to sustain growth in the face of these pressures, despite its value-oriented positioning and expansion plans. This mix of positive long-term outlook and short-term challenges likely contributed to the stock’s decline.
No value in sausage rolls
I appreciate many investors won’t agree with me here, but I don’t attribute much value to a Greggs sausage roll. Here’s what I mean by that. As societies become wealthier — which hopefully we all will — I believe consumers tend to shift towards healthier, higher-quality food options. Moreover, there are some very low barriers to entry in baked goods. It’d be wrong to assume Greggs won’t go unchallenged in the sausage roll and baked goods market.
What’s more, despite its gimmicky sit-down restaurants, it’s unlikely to benefit from an improving restaurant scene. This doesn’t mean the business model doesn’t work — clearly it’s a leader in food-to-go. It simply highlights my concerns for the future. Ultimately, Greggs’ future success will likely depend on its ability to continue innovating and adapting to evolving consumer preferences while maintaining its value proposition in an increasingly competitive market.
There’s better value elsewhere
Greggs may offer excellent value on the high street, but I don’t see that on the stock market. I may be wrong though and it could go on to rebound as it’s a beloved brand.
The stock’s trading at 16 times forward earnings. This falls to 15.5 times for 2025, based on projected earnings, and 14.3 times for 2026. Coupled with a modest 3.1% dividend yield, I believe the value proposition’s fine, but it doesn’t whet my appetite.
Simply put, I’d rather consider other options on the FTSE 250.
