A growth share can be all the rage one minute, then suddenly find itself out of favour. That’s whats happened over the past year with Greggs (LSE:GRG). The stock performed well in recent years, but fell 40% during 2025. This puts the FTSE 250 company in an interesting position as we start 2026, with investors mulling over whether to buy the dip.
How we got here
One factor in the fall last year was lower growth. It’s important to make a distinction here between Greggs still seeing higher revenue, but just at a slower pace, and revenue actually falling, which it isn’t. For example, in the latest trading update from October, revenue was up 6.7% year-to-date. Some might think this isn’t too bad.
Yet if we look at the same report from the previous year, revenue was up 12.7%. Double-digit percentage gains relative to prior reporting years are now expected for many investors. So even though Greggs is still growing, some feel disappointed that things are slowing.
Another reason for the share price fall came as part of a sector-wide issue. Broader consumer stocks struggled amid cost of living concerns. Investors became more cautious about UK retail and food-on-the-go names, given the low UK economic growth and future prospects.
Reasons to consider buying
On the plus side, the price-to-earnings (P/E) ratio’s fallen, given the share price’s slump relative to the latest earnings per share. To put this into context, a year ago, the P/E ratio was around 20. Now it’s at 11.15. In my eyes, the stock does look undervalued on that metric. Remember that the FTSE 250 average P/E ratio is 13.3. Given Greggs is a growth name, I’d expect the ratio to be above the average.
Management’s still targeting significant net new store openings in 2026. In the latest update, it spoke of “a strong pipeline for Q4 and into 2026”, which should support long-term sales growth once the pressure on like-for-like sales eases. It’s a proven business model for success, in that continued expansion into high-traffic locations drives both volume and revenue growth.
Further, the company’s continuing to diversify risk via direct sales in supermarkets. The range is now available in 930 Iceland and 820 Tesco stores across the UK, with more planned. As this area of the business continues to grow, it provides a buffer when other divisions don’t perform as well.
Needing to be cautious
The overall slowdown in growth is an ongoing risk for investors to watch. However, I think the fall in the share price has taken things to the other extreme. Given the current valuation, it’s almost as if people expect Greggs’ revenue to start declining. I just can’t see this happening.
The company is still in expansion mode, but the pace will naturally slow as it matures. Yet profitability remains intact, which is a fundamental reason I think investors could consider buying the dip.
