The Greggs (LSE:GRG) share price has made an awful start to the year. Only months ago, the stock was breezily changing hands above £31. Today, it’s trading below £18 as the business battles a plethora of challenges.
So, does the FTSE 250 sausage roll retailer now offer a cheap investment opportunity? Or have Greggs shares become a stale value trap to avoid?
Let’s explore.
A bitter taste
At first glance, the collapse in the Greggs share price might appear unwarranted. Revenue passed £2bn for the first time last year and pre-tax profit rose 8.4% to reach £204m. Those appear to be solid numbers, so what on earth’s going on?
Well, the stock market’s often described as forward-looking. Essentially, past results are yesterday’s story. What truly matters are the clues they can provide investors about a firm’s future growth trajectory. On this front, there are multiple headaches for Greggs shareholders.
Like-for-like sales growth has slowed to a snail’s pace, inching just 1.7% higher in the first nine weeks of 2025. The company cited “challenging weather conditions” in January as a factor behind the deceleration. It’s rarely a good sign when a firm’s reaching to blame the British winter for an underwhelming performance.
In addition, the Newcastle-based business warned that margins could be compressed in 2026 and 2027, impacted by investments in manufacturing, logistics, and distribution. To compound difficulties, increases to the National Living Wage and a rise in employer’s National Insurance contributions add inflationary pressure, which could hurt the bottom line.
Fundamentally, it seems the wind has been taken out of the firm’s sails. The Greggs share price has historically enjoyed strong positive momentum, propelled by rapid growth across several metrics. In the cutthroat food-to-go market, the company can ill afford to take a breather while competitors snap at its heels.
Silver linings
Although things may seem gloomy for Greggs, there are countervailing reasons to be optimistic. Patient investors may still be rewarded given the board remains bullish that it can return to its previous growth trajectory in the long term, even if it takes a few years.
Plus, there was a saving grace for investors who prioritise passive income. The group’s boosted its full-year dividend by 11% to 69p per share. Dividends are well covered at two times anticipated earnings, providing shareholders with a decent margin of safety.
From a valuation perspective, the Greggs share price also looks more attractive today. The forward price-to-earnings (P/E) ratio has reduced considerably relative to the stock’s historical average. Trading at a multiple of 13 times forward earnings, there’s a credible case to be made that the shares are cheap today.
Finally, ambitious long-term expansion plans to operate more than 3,000 UK outlets indicate that there could still be room for further growth. In 2024, the business celebrated opening its 2,600th shop and it aims to deliver 140 to 150 new stores this year.
My take
I’ve been impressed with Greggs’ business in the past, but the latest results have given me pause for thought. Although the stock looks cheap today, I’m reluctant to invest until I see concrete evidence that the firm can return to its glory days. Overall, I see better investment opportunities elsewhere.
