I don’t know what inspired the Mick McCarthy reference in the title, but sadly, I’m not very optimistic about Greggs (LSE:GRG) shares.
And while I feel for the company and everyone who may benefit from an elevated share price, it’s great to see the stock return to more manageable valuation multiples.
On a forward basis, the price-to-earnings ratio falls to about 13 times 2025 earnings, dropping further to 12.4 times in 2026 and 11.8 times in 2027.
Similarly, enterprise value-to-EBITDA multiples decline from roughly 6 times in 2025 to 5.5 times in 2026 and 5.1 times in 2027.
This highlights a more reasonable valuation versus the 25 times earnings we saw in mid-2024.
That said, growth remains modest.
Earnings per share are forecast to rise slowly from 124.8p in 2025 to 138.7p in 2027, reflecting broader UK retail pressures.
Dividend growth is also limited, hovering around 4%, while net debt is projected to exceed £430m — this is around 20% of the company’s market cap.
What’s wrong with the valuation?
There’s nothing particularly unattractive about the company’s valuation, but there’s nothing to excite me either.
The dividend yield is certainly stronger than it used to be. I’m just not sure if that’s enough of a catalyst to take the share price upwards.
And the current earnings trajectory certainly isn’t going to push the share price upwards. In fact, a dividend and net debt adjusted price-to-earnings-to-growth (PEG) ratio indicates a significant overvaluation.
But the PEG ratio is typically used for growth-focused stocks, and maybe Greggs isn’t a growth-focused stock anymore.
It’s not easy out there
Let’s be fair, though.
It’s not easy for UK businesses out there. The UK government has piled additional pressure on companies with higher labour costs.
This compounds issues like the world’s highest energy costs, regulatory burdens, and additional uncertainties related to potential tax hikes in the coming budget.
And more generally the economy isn’t red hot. Things are okay, but business and consumers up and down the country are under pressure.
Running a small soft drinks business — Sumacqua — myself, I can only attest to the challenges. Cafes and bars aren’t booming.
No room to grow
Greggs faces a strategic challenge in staying on trend as consumer preferences shift towards healthier, higher-protein and lower-carb options.
While the company is responding with its new GLP-1-friendly menu for customers using weight-loss drugs, its core offering of pastries and sausage rolls still positions it outside the health-conscious mainstream.
Moreover, Greggs has already achieved near-saturation in the UK, with outlets on most high streets, retail parks, and service stations.
International expansion has been attempted and failed. And domestic growth will depend on incremental innovations such as evening trading and delivery.
Without a clear avenue for meaningful expansion, long-term growth prospects appear constrained. This is reflected in the earnings trajectory.
Ok, so what’s the conclusion? Well, I believe investors could find better options elsewhere.
