Greggs (LSE: GRG) shares have fallen sharply over the past two years, due mainly, I think, to wider cost-of-living effects.
However, its shift to longer opening hours, digital ordering and higher‑margin hot food has supported steady revenue growth throughout.
Yet even with this operational strength, the shares now trade at a steep discount to their estimated ‘fair value’.
So, where should the stock be trading?
Growth drivers
A risk to Greggs’ margins is any further surge in the cost of living, which may cause customers to reduce their spending. This was the main reason behind the 4% year-on-year fall in operating profit (to £187.5m) in its preliminary 2025 results, released on 3 March.
However, the numbers overall also highlighted a business continuing to build long-term commercial momentum across sales, channels and formats.
Indeed, total sales rose 6.8% year on year to a record £2.151bn. This was driven by steady like-for-like growth of 2.4% and the opening of 121 net new shops.
This in turn reflected strong performance in higher‑traffic formats such as retail parks, travel hubs, and drive-throughs. It also saw a rising contribution from digital channels, including click & collect, delivery via Just Eat and Uber, and its loyalty programme.
At the same time, business-to-business revenue increased 9.2% to £254m, underpinned by growing momentum in franchise and grocery partnerships.
Further growth momentum is likely to come from its sweet-spot positioning among its competitors. It is often seen as cheaper and faster than many major fast-food chains. It has a lower price point and broader savoury range than many of the major coffee chains. And it can argue that it is fresher and more convenient than many supermarket meal deals.
Together, these drivers show a business delivering top-line growth and expanding its strategic footprint, even as short-term cost pressures weigh on profit.
What’s the stock really worth?
The best valuation method is discounted cash flow (DCF) analysis, I feel, based on my experience as a former senior investment bank trader.
It clearly identifies where any company’s share price should be priced, based on forecast cash flows for the underlying business. In doing this, it produces a clean, standalone valuation that is unaffected by over- or undervaluations across a business sector.
Some analysts’ DCF modelling for Greggs is more bearish than mine. However, my modelling — including a 7.2% discount rate — shows the shares to be 34% undervalued at their current £16.58 price. Therefore, my calculations see their ‘fair value’ as £25.12.
This gap between the stock’s price and value is crucial for long-term investor profits. This is because a share’s price tends to converge to its fair value over time. So for Greggs, this major gap suggests a potentially superb buying opportunity to consider if those DCF assumptions hold.
My investment view
Greggs stands out to me as a rare combination of record sales momentum, expanding market reach and iconic branding.
Its growing digital ecosystem, rising loyalty‑programme usage and accelerating business-to-business partnerships add further support for growth.
I already have a holding — Marks and Spencer — in the food retail sector, so adding another would unbalance my portfolio.
However, given Greggs’ strong fundamentals and heavily discounted price, I think it well worth the attention of other investors.
