Greggs (LSE: GRG) has spent the past year quietly strengthening its case as one of the UK’s most resilient consumer‑facing operations, even though its shares have struggled.
The underlying business has seen steady sales growth, expanding store numbers and an operational model that keeps proving its durability. But the stock has drifted well below what those fundamentals justify after a 26% drop from its one-year traded high.
With earnings momentum and the long‑term growth story still building, the question is: has the market pushed Greggs too far into the bargain bin?
Strong growth momentum?
A risk for Greggs’ growth momentum is another surge in the cost of living that may reduce consumer spending. Another is increased competition in the food-to-go space that could squeeze its margins.
Nonetheless, analysts forecast that its earnings will increase by a solid average of 4.4% a year over the medium term, at minimum. And it is ultimately this growth that powers a firm’s share price over the long run.
Such momentum looked well supported to me in its 2025 annual financial report, released on 13 April. Total sales rose 6.8% year on year to a record £2.151bn, underlining the strength of Greggs’ multi‑channel business model.
Like‑for‑like sales in company‑managed shops increased 2.4%, illustrating resilient demand and the effectiveness of menu innovation and value leadership. It bodes well for the continued expansion of its 2,700‑plus shop estate. The 4.3% rise in its sales in franchised units in outlets such as travel hubs further highlights the scalability of Greggs’ partnership strategy.
Where ‘should’ the shares be trading?
For any stock, price and value are two very different things. The price simply reflects what buyers and sellers agree on at a particular moment, whereas its value is rooted in the strength and prospects of the underlying business.
For long‑term investors, that gap matters enormously. Over time, market prices have a habit of drifting back toward a company’s true worth — its fair value — which is why understanding the difference can be so powerful for building returns.
To estimate a stock’s fair value, discounted cash flow (DCF) analysis projects future cash flows and discounts them back to today. The more uncertain those earnings forecasts are, the higher the return investors demand, which increases the discount rate.
Analysts’ DCF models vary depending on their assumptions — some more optimistic, others more conservative. Based on my own inputs, including a 7.9% discount rate, Greggs’ shares appear 61% undervalued at £16.36. That places fair value at roughly £41.95, more than twice the current level.
If prices continue to migrate toward fair value over time, this could be a compelling buying opportunity should those DCF assumptions prove accurate.
My investment view
I already hold Marks and Spencer shares, so adding another stock in the food retail sector would unsettle the risk/reward balance of my portfolio.
If it were not for that, I would buy Greggs for its rare combination of iconic branding, expanding market presence, and record sales momentum.
As it is, I have my eye on other deeply-discounted stocks that also generate very high dividend yields. Aged over 50 now, I am focused on such stocks to make my retirement as comfortable as possible!
