Have we reached peak pessimism with Greggs‘ (LSE:GRG) shares? I ask because the FTSE 250 stock’s crashed 47% since August 2024, leaving Greggs languishing near a five-year low.
Indeed, the share price is now just 30% higher than it was way back in December 2015, despite sales and profits more than doubling since then. At first glance, that doesn’t seem right.
So is there a possible opportunity in Greggs’ shares today?
Latest forecasts
The overall consensus among 15 City analysts is that the stock’s worth buying. However, seven rate it a Hold while two say Sell, so it’s close.
These mixed opinions are reflected in the price targets. One bear sees Greggs’ stock falling 21% to 1,315p over the next 12 months, while a bull reckons it could surge as much as 51% to 2,500p.
The average price target among these brokers is 1,853p, which is around 12% higher than the current level. This suggests Greggs could turn a £1,000 investment into around £1,160 by January 2027, including the forecast dividend yield of 4.2%.
This return isn’t guranteed, of course, and much will depend on how Greggs navigates the challenges it currently faces. These include cost inflation, rising unemployment, weak consumer spending, and changing eating habits among people on GLP-1 weight-loss drugs.
Cannibalisation fears
Might we now be reaching peak Greggs? This is a question some investors are asking.
Peak Greggs refers to the point where the bakery chain has expanded so much that it struggles to grow without cannibalising existing shop sales. In other words, opening a new Greggs might just steal customers from the shop nearby.
Management doesn’t share this viewpoint, as it’s still aiming for 3,500 shops long term, up from 2,739 today. Greggs is currently building two large new facilities to support this growth.
Where would these new shops go? After all, Greggs seem to be everywhere nowadays. Well, while the North and Midlands are well represented today, large parts of the South and South East still have much lower shop density (the ratio of shops to population). By matching northern density in the south, it could still eventually add hundreds more shops.
Greggs also sees a clear growth opportunity in supermarkets like Tesco and Sainsbury’s, retail parks, and medium-sized train stations. It’s piloting smaller, ‘bitesize’ shop formats for the latter.
The firm’s also increasing the number of franchised locations, which tend to outperform company-managed shops.
Finally, Greggs isn’t pursuing its expansion strategy blindfold. Customer data from its app shows new shops are not noticeably cannibalising sales from existing locations.
Cheap valuation
We are now past the peak of our capital expenditure programme, with the successful completion of the ‘build phase’ of our two new distributions centres within budget. As previously communicated, capital expenditure will reduce significantly in 2026 and further again in 2027.
Greggs.
Due to the challenging market, the firm expects pre-tax profit this year to be in line with 2025 (around £173m). But looking forward, I think the company’s long-term growth prospects are still intact.
Even better, after the massive pullback, the stock’s trading at 13 times forward earnings, a significant discount to the 10-year average of 22.
Add in the 4.2% dividend yield, and I reckon Greggs is worth considering at these deeply pessimistic levels.
