Long-term holders of Greggs’ (LSE:GRG) shares will look back on 30 December 2021 with fond memories. That was the day the baker’s shares reached their all-time high of £34.43.
Since then, annual sales have risen 75% but its shares have tanked. And now the group holds the dubious honour of being the UK’s most shorted stock. What on earth’s going on?
Then and now
Towards the end of 2021, the UK economy had moved on from the worst of the pandemic and was starting to grow again. Fewer people were working from home and the country’s high street’s were becoming busier. One of the beneficiaries of this was Greggs. During the 52 weeks to 2 January 2021 (FY21), its sales soared 51.7% year-on-year.
Every year since, its sales have increased. However, that rate of increase has slowed. In FY25, its top line grew by 6.8%. On a like-for-like basis, revenue was up 2.4%.
| Financial year | Total sales growth (%) | Like-for-like sales growth (%) | Underlying profit before tax (£m) | Underlying earnings per share (pence) |
|---|---|---|---|---|
| 2021 | 51.7 | 52.4 | 145.6 | 114.3 |
| 2022 | 23.0 | 17.8 | 148.3 | 117.5 |
| 2023 | 19.6 | 13.7 | 167.7 | 123.8 |
| 2024 | 11.3 | 5.5 | 189.8 | 137.5 |
| 2025 | 6.8 | 2.4 | 171.9 | 122.8 |
But life as a listed company can be tough. Investors expect Britain’s biggest companies to grow faster than this. And they like to see an improving trend. Greggs’ disappointing share price performance illustrates what happens when a company fails to live up to expectations.
Anyone unfortunate enough to have bought £10,000 of shares on 30 December 2021, will probably be cursing their decision. These shares are now worth £4,923. Ouch! However, they have received some reasonably generous dividends since. Although the baker’s payouts can be erratic, the stock’s currently yielding 4.1%, based on amounts paid over the past 12 months.
An over-reaction?
However, I think the decision by investors to punish Greggs so harshly is a little unfair. After all, the group’s FY25 underlying earnings per share (EPS) was 7.4% higher than in FY21. The stock now trades on 13.8 times FY25 earnings.
When its shares were at their peak, it had a price-to-earnings ratio of more than 30. On this basis, Greggs looks significantly undervalued. But again, critics will point to the trend in its top line as a reason to be cautious.
But there’s no point being a lone voice. No matter how cheap I think the group’s stock might be, if lots of other investors disagree, I’m going to lose money by taking a stake. Indeed, the 14 investment firms who borrowed 13.48% of the company’s stock in the expectation (hope?) that its share price will fall, believe there’s more bad news to come for longstanding shareholders.
Of course, this just reflects one point of view. They may all be wrong.
The (slimming) elephant in the room
However, I suspect most can agree that a trend towards healthier eating could be a problem. The group acknowledges that weight-loss jabs are currently affecting the business. It’s observed a trend towards smaller portions and people looking for protein and fibre rather than sugar and fat. Greggs has adapted its menu accordingly but the jury’s out as to the long-term impact of these drugs on its business.
On paper at least, Greggs shares look cheap, which makes them tempting to the bargain-hunter in me. But I don’t want to invest. I’d like to see some evidence that the group can grow faster and it can see off the threat of fat jabs. Until then, I think there are better opportunities to consider elsewhere.
