If I were Roisin Currie – CEO of FTSE 250 fast-food star Greggs (LSE: GRG) – I might feel somewhat hacked off.
Every quarter, her firm posts apparently strong, very strong, or excellent results, but still the share price falls.
So what is causing this?
The latest results
Greggs’ 20 May trading update covering the first 20 weeks of 2025 showed total sales up 7.4% year on year to £784m. Like-for-like (LFL) sales growth rose 2.9%, with the firm reporting that better trading conditions supported an improved trend.
LFL sales measure a retail business’s growth from its existing stores and space, excluding new store openings or closures.
In its 2024 results released on 4 March, Greggs posted a record £2.14bn in sales and a record profit of £203.9m.
I think it also worth noting that it overtook McDonald’s as the UK’s top breakfast takeaway in 2023 and retains that position.
What’s the problem?
A key risk for Greggs is the longer-term impact of the October Budget’s 1.2% increase in employers’ National Insurance. This came into effect on 6 April and may prompt some of the costs to be passed on to customers. This could cause a drop in their spending. A similar effect would result from another broader-based surge in the cost of living.
Another risk is that Greggs cannot maintain the same rapid level of growth that it has seen in recent years.
Indeed, consensus analysts’ forecasts are that its revenues will increase by 7.6% a year to the end of 2027. This is down from the 17% a year seen in the past three years.
Worse still, its earnings are projected to fall by an average of 1.1% a year to the same point. This compares to an average annual growth rate of 28% during the last three years.
Revenue is the total income a company generates, while earnings are the profit remaining after all expenses are deducted.
Ultimately, it is earnings — not revenue — that drive any firm’s share price (and dividends) over the long term.
Where does this leave the share price?
That said, even with a slight forecast decline in earnings, there may still be value in the share price.
On its forward price-to-earnings ratio of 12.7 it looks undervalued against some food/hospitality peers’ 17.2 average. These firms comprise Mitchell’s & Butlers at 9.8, J D Wetherspoon at 13, Whitbread at 20.6, and McDonald’s at 25.4.
I ran a discounted cash flow analysis to pinpoint where the stock should be, derived from cash flow forecasts for the underlying business.
This shows Greggs’ shares are 23% undervalued at their present price of £19.20.
Therefore, their ‘fair value’ is £24.94.
Will I buy the stock?
Having looked at the latest valuations for Greggs, the reason behind its share price fall no longer looks so curious to me. Right now, at my later point in the investment cycle (I am over 50), I will not buy the stock.
That said, I think it may well be worth considering for those with a longer investment horizon. The longer that period, the greater the chance that a fundamentally strong stock – which I think Greggs is – can demonstrate its true value.
