2025 has been an annus horribilis for Greggs (LSE:GRG) shareholders. At the start of the year, the shares were were changing hands for nearly £28 a pop. Now, as I type, that same share goes for less than £16.50!
To put this 41% decline into perspective, someone would now have less than £3,000 from a £5,000 investment made in early January. And though Greggs pays dividends, these would have totalled less than £150.
In other words, this FTSE 250 stock has been a major disappointment this year. But what about 2026 and beyond? Might brighter days be ahead? Here’s my take on the Steak Bake maker.
What has gone wrong?
Greggs kicked off the year with a trading update that unsettled investors like a dodgy sausage roll left out of the fridge. It said that like-for-like (LFL) sales in company-managed shops grew by just 2.5% in the fourth quarter of 2024. That was a far cry from previous periods of strong LFL growth.
Trading performance reflected a well-publicised more challenging market backdrop in the second half of 2024. Lower consumer confidence impacted High Street footfall and industry-wide visits and expenditure.
Greggs, January 2025
On top of this, Greggs warned that “employment costs will result in further overall cost inflation“. This came after Employers’ National Insurance contributions were increased by the government.
This caused the first leg down in January. The second came in March when the company reported that LFL sales rose by just 1.7% in the first nine weeks of 2025.
The third leg down happened in July when Greggs said June’s hot weather increased demand for cold drinks but not much else, reducing overall footfall. As a result, management warned that full-year operating profit might be modestly below 2024’s figure.
Then there was a general drift lower in the uncertain lead up to November’s Autumn Budget. However, since the Budget, when most (though not all) businesses were spared, the stock has bounced 15.5% higher from its 52-week low.
Cheap stock
One consequence of the share price collapse is that the dividend yield is higher. It’s now 4.2%, meaning income-focused investors are probably more interested in Greggs than they have been for years.
The valuation also looks too cheap to me. Granted, Greggs is facing a tricky period, but a forward price-to-earnings ratio of 12.5 seems a bit excessive for a market-leading company with decent margins.
Taking a long-term view, I reckon the stock is oversold. Analysts at JP Morgan agree, arguing that Greggs is well positioned to “weather the current storm“.
JP Morgan’s model projects free cash flow reaching £205m by 2029 (from negative this year due to elevated capital expenditures). This implies a forward price-to-free-cash-flow ratio of roughly 8 by 2029.
That’s potentially very cheap, underpinning JP Morgan’s view that the stock offers an “asymmetric risk-reward” profile.
Of course, these projections might prove too rosy. Meanwhile, Greggs was recently the UK’s most-shorted stock, meaning that institutional investors are betting there will be more near-term pain.
With the cost-of-living crisis lingering on, and the threat of GLP-1 drugs curbing appetite for fatty and sugary foods, that can’t be ruled out.
But on balance, Greggs looks cheap and is worth considering buying. It’s just one of many opportunities I am seeing in the FTSE 250 today.
