Some of the best investors say “invest in what you know”. And lots of Britons know Greggs (LSE:GRG). I’m not saying that’s the only reason it’s been such a popular investment in recent years, but it’s certainly a relatively easy business to understand. And that could have been a contributing factor in the stock’s success. Now, some of you will know that I’m not a fan of Greggs shares, even after the recent sell-off. Simply, I think it’s overvalued and overrated as a business. So, here are my three reasons to avoid Greggs in 2025.
Still not cheap
Greggs shares remain relatively expensive despite recent fluctuations. The current price-to-earnings (P/E) ratio of 18.4 times is notably lower than in previous years, but still higher than the index average. What’s more, this figure indicates that the market is expecting Greggs to grow earnings at an impressive pace
However, the company’s P/E-to-growth (PEG) ratio of 2.46 suggests limited future earnings growth based on analysts’ earnings projections. Given that a PEG ratio of one and under is a sign of a fair valued or undervalued stock, this figure should be a warning sign. In fact, it screams ‘overvaluation’.
What’s more, there’s some net debt to throw into the equation — almost £300m. While the company’s solid 2.5% dividend yield provides some form of shareholder returns, the broader picture indicates an overvalued stock.
Nowhere to grow
Greggs has impressed investors with earnings growth in recent years. This has been driven by strategic shop openings, a strong customer base, and a successful menu expansion. By 2024, its net sales reached £2bn, with solid EBITDA (earnings before interest, tax, depreciation, and amortisation) and net income growth. Looking ahead, Greggs aims to significantly expand its UK presence further, targeting more than 3,500 shops in the longer term. The focus will be on travel hubs, roadside locations, and increasing its presence in supermarkets.
While this offers fresh growth opportunities, particularly for on-the-go customers, I’m concerned that Greggs may be reaching saturation point. It’s already a feature on most urban highstreets. Moreover, as competition for prime retail spaces intensifies, Greggs will need to successfully tap into these new formats — travel hubs — without overextending or cannibalising existing stores. Ultimately, its growth trajectory will depend on how well it adapts to these evolving opportunities. Personally, I believe there’s a lot of execution risk here.
Better options elsewhere
My third and final reason for avoiding Greggs stock is simply because investors can find better opportunities elsewhere on the index. What’s more, there are plenty of businesses with simple business models that are often overlooked.
One of my current favourites is Jet2. The airline stock is incredibly overlooked by investors with an average share price over 50% higher than the current share price. It has a huge net cash position and, as the UK’s number one tour operator, it’s expected to grow earnings at an impressive pace.
In fact, while this isn’t a perfect comparison given they’re from different sectors, Jet2 is trading at 1.2 times EV-to-EBITDA. Greggs is at 9.2 times. In short, this is why I’ve been buying Jet2 shares, and not Greggs.
