The Greggs (LSE:GRG) share price might be up 7% in April, but it’s down 31% over 12 months. Many investors had bet on Greggs’s growth agenda, but with revenue growth slowing considerably and the stock falling, it’s beginning to look more like a value or dividend stock. In other words, its value proposition as an investment is changing.
Valuation picture improves
I’d suggest the Greggs shares rose in April 2025 primarily because the stock had become significantly cheaper after a prolonged period of decline. Over the previous year, the share price had fallen by more than a third, bringing its valuation down from a high of around 25 times forward earnings to a more attractive level near 13 times forward earnings. This sharp drop likely caught the attention of value and income investors.
The annual report also fell in April. Despite my long-standing concerns about the now realised slowing growth and market saturation, Greggs continued to demonstrate strong underlying profitability. Pre-tax profits jumped to £190m and the company also increased its full-year dividend by 11%, making it appealing to investors seeking stable income.
Additionally, management’s commitment to long-term expansion plans, including opening 140 to 150 new stores in 2025 and investing in new manufacturing and logistics facilities, reassured investors that the company was positioning itself for future growth.
As such, the combination of a more attractive valuation, ongoing profitability, dividend increases, and strategy commitment contributed to the renewed investor confidence that drove the share price higher in April.
My concerns remain
Greggs certainly isn’t bad value at this time. Noting the valuation and the nearly 4% dividend yield, I’m not as bearish as I once was. However, my concerns about the sausage roll-maker’s long-term prospects remain.
Firstly, with over 2,600 stores, Greggs may be reaching saturation point. While management maintains ambitions to exceed 3,000 UK outlets, the pace of expansion — targeting another 140 to 150 net openings in 2025 — raises questions about how much further the chain can grow before diminishing returns set in, especially as prime locations become harder to find.
Secondly, evolving healthy eating trends present a structural challenge. Greggs’s core menu of pastries and sausage rolls may receive more scrutiny as consumers shift towards healthier, organic, plant-based, and lower-calorie options. While Greggs has responded with vegan products and menu innovation, the brand’s association with indulgent, on-the-go food could limit its appeal in the long run.
Nonetheless, I accept that Greggs has a cult following. The firm won’t lose its business over night. It may need, however, to shift its offering to meet changing customer preferences.
Personally, it’s not the investment for me. Because of the reasons highlighted above, I believe there’s a degree of execution risk for long-term growth. However, I can see why investors might be interested in the dividend and lower price-to-earnings ratio.
