I believe Greggs (LSE:GRG) shares have been vastly overvalued for some time and the collapse over the past 12 months reflects a fall closer to fair value.
But the big question is: where will the stock be in one year’s time? Well, I thought I’d put the question to ChatGPT. After all, artificial intelligence has come a long way in recent years.
Having asked ChatGPT about several stocks over the past week, I wasn’t overly surprised by its nuanced and analyst-led response when I asked it about Greggs.
The AI platform started by noting that any prediction or forecasting would never be truly accurate and that Greggs’s share price performance would reflect several things.
While headline data is crucial, ChatGPT also highlighted weather as an important factor. As noted by Stephen Wright — Fool writer and host of the excellent PlayingFTSE podcast — Greggs tends to underperform when temperatures are either too cold or too hot.
Anyway, what did ChatGPT predict? Here’s what it said:
Putting it all together, here’s a rough scenario:
Base/consensus case: Greggs shares reach around 2,050p-2,200p within a year, assuming continued recovery in consumer spending, stable costs, and decent execution.
Bull case: If Greggs outperforms (strong like-for-like sales, cost control, new growth initiatives), they could hit around 2,400p+.
Bear case: If adverse weather, cost inflation or margin pressure bite deeply, the shares could slip towards the lower analyst bounds (around 1,300-1,500p).
My own estimate [still ChatGPT] is around 2,100p in 12 months, a reasonable midpoint given current sentiment and risks.
Do I agree?
I actually think this forecast is a little bullish. It would imply a near-20% gain from the shares, and quite frankly, I’m not sure where that catalyst would come from.
The business registered 20% earnings growth in 2023, but momentum was curtailed in 2024. For 2025, earnings per share are expected to fall by 13.4%. In 2026, analysts expect only a modest increase — around 4%.
As such, it’s trading at 13.7 times forward earnings for 2025 and 13.1 times forecast earnings for 2026.
Looking beyond the forecasting period, I’m not sure what investors have to get excited about. Cheap food-to-go isn’t in vogue. Health and weight-loss is.
Greggs stores may have also reached saturation point in the UK market. They’re already everywhere in the UK and past attempts at launching overseas haven’t worked.
I’d add that while the 4% dividend yield is better than it has been, there’s unlikely to be much progression in dividend payments in the coming years. That’s what the forecasts are suggesting.
Debt has been growing too. The net debt position now represents around 20-25% of the company’s market cap. That’s a huge change from 18 months ago when the figure was under 10%.
So, my conclusion? I don’t think it’s worth considering. It’s trading near fair value.
