The past 12 months have been a rough ride for Greggs (LSE: GRG) shareholders. At their 52-week high on 20 September 2024, Greggs shares peaked at 3,250p. But the FTSE 250 stock has slumped like badly made puff pastry ever since.
Flaming June batters baker
As one of the UK’s leading providers of food-to-go, Greggs sells around a million of its famed sausage rolls every day. However, the group’s reliance on selling hot and takeaway food has proved a handicap during the recent heatwaves.
Last Wednesday (2 July), the share price plunged after the firm issued a profit warning, supposedly triggered by the hottest-ever June in England. The company warned that this heatwave had reduced footfall to its estate of around 2,650 outlets.
In the first half of 2025, Greggs’ like-for-like sales growth slowed to 2.6%, brought down by “very high temperatures”. This clearly disappointed investors buoyed by strong sales during the warm spring. This news crashed the Greggs share price to a one-year low of 1,645p, before it recovered slightly to close at 1,675p.
In my long experience, when retail bosses blame problems on the weather, there are usually deeper issues. I suspect that some shareholders sold stock on fears that this temporary blip might turn into a sustained downturn in sales. There are also fears that the group’s UK market is become saturated, slowing Greggs’ future expansion.
The business faces another hit to profits in the form of nearly £100m of extra costs due to higher National Insurance contributions introduced in last year’s Budget. Then again, the group has responded by introducing new product ranges, as well as opening more shops in the evenings.
Is Greggs a fallen angel?
As a value investor, I love buying into ‘fallen angels’ — otherwise solid businesses undergoing temporary share-price slides. For me, the cheaper a stock gets, the more appealing it becomes — assuming no other obvious red flags, that is.
Right now, Greggs shares look inexpensive to me in historical terms. They trade on under 11.4 times trailing earnings, delivering an earnings yield of 8.8%. The slumping share price has boosted the dividend yield to 4% a year, slightly above the FTSE 100‘s yearly cash yield of 3.6%. This payout is covered a generous 2.2 times by historic earnings.
Also, unlike many of its debt-laden peers, Greggs had a net cash position of £125.3m at end-2024. To me, these are not the fundamentals of a company in crisis.
One old market saying warns ‘never buy a falling knife’ — and I know full well that such trades can prove disastrous. Even so, my wife and I bought Greggs shares during Wednesday’s nosedive at an all-in price of 1,696.7p (including stamp duty and dealing commission).
Of course, I could well be wrong. If sales growth in the second half of 2025 is even weaker, then Greggs shares could sink again. Likewise, if operating profits, earnings and profit margins slide, then this purchase may leave a bad taste in my mouth. But I’m hopeful that the Greggs share price will go on a (sausage) roll in 2025/26!
