To say 2025’s been a rough year for Greggs‘ (LSE:GRG) shares is a bit of an understatement. The once beloved UK bakery stock has seen its market-cap plummet by almost 44%, transforming a £5,000 investment into just £2,822.
Slowing sales and rising costs have hampered the group’s financial performance. So it’s understandable why investor sentiment turned sour, especially given that Greggs’ shares used to trade at a premium valuation.
However, with its price-to-earnings ratio now standing at just 11.4, could the market have overreacted and secretly made a stellar discounted buying opportunity?
Bargain or trap?
Throughout the year, Greggs has had to tackle a number of external challenges. Increases to the Minimum Wage and National Insurance contributions were particularly problematic given the group’s roster of over 32,000 employees across the country.
And this headwind doesn’t look like it will subside next year either, with the latest Autumn Budget announcing another 4.1% jump in the National Living Wage.
That’s great for workers, but bad for Greggs. And it’s not the only pressure point. Inflation continues to be sticky, driving up the cost of raw ingredients needed to manufacture its products. And combining these forces with adverse weather conditions that reduced store footfall, pre-tax profits have tumbled by double digits.
The good news is that weather conditions have since improved, product innovation’s driving up sales, supply chain investments remain on track, and a new wholesale partnership with Tesco has been established.
At the same time, while higher staff costs are coming in April 2026, the government also announced permanent business rate reductions for retail stores like those belonging to Greggs and its franchises.
So far, we’ve already seen some modest improvement with a 6.1% uptick in sales during the third quarter. That’s still shy of the double-digit growth achieved last year. But it’s nonetheless a significant improvement compared to the beginning of 2025.
What to watch out for…
Greggs is expected to deliver its next trading update in early January. And two of the biggest factors investors are looking out for are:
- Is revenue growth re-accelerating both overall and on a like-for-like basis?
- Is management successfully offsetting cost inflation through efficiency gains or price adjustments?
If the answer’s ‘yes’ to both, the analyst’s assessment about the group’s profit recovery potential is likely to be far more positive than today. And it could even be enough to trigger a share price rally.
In my opinion, it’s the second point that’s going to be the hardest. While inflationary costs for raw ingredients seem to be improving, further wage inflation appears inevitable next year. And with many UK households still under significant financial pressure, price hikes on Greggs’ products could backfire on sales volumes.
A pilot programme for self-service kiosks is currently underway. And a successful rollout would allow the company to operate with fewer staff, offsetting the margin impact of higher wages – something to keep an eye on in 2026.
But for now, there remains a lot of uncertainty surrounding this business. So while I think Greggs’ shares are definitely worth watching, it’s too early to know whether today’s price is a bargain, or if the stock has further to fall. Luckily, there are plenty of other buying opportunities to explore.
