Greggs (LSE: GRG) shares have been a big winner in recent years, as the board pursued an ambitious and successful expansion strategy.
The bakery chain has become a fixture on our high streets, in shopping centres, railway stations and even airports. As Britons seek affordable treats in tough times, Greggs has filled its boots.
Then last autumn, growth slowed as the wider economy ground to a halt. Although sales are still rising, the pace has slowed. The company set itself a high benchmark and has struggled to meet it.
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Can this FTSE 250 stock bite back?
In full-year results released on 9 January, Greggs announced that total sales had passed £2bn for the first time in 2024, rising 11.3% year on year.
That should have been cause for celebration but like-for-like (LFL) sales growth in company-managed shops had slowed to 5.5%.
Q4 was weaker, with total sales up 7.7%, but LFL sales growth slipping to just 2.5%, amid “more subdued high street footfall”.
Chief executive Roisin Currie remained optimistic, citing a strong pipeline of new locations and an expanding menu, but these are tough times if consumers can’t afford a Greggs steak bake or sausage roll.
Even the weather has been against it as hopes for a 2025 turnaround were cooled by a disappointing trading update on 9 March.
LFL sales in company-run shops rose just 1.7% in the first nine weeks of the year, with “challenging” January weather the culprit this time. There was a sign of improvement in February, and with spring on its way, investors will hope that continues.
While Greggs won’t be hit by Donald Trump’s trade tariffs, it could take a knock from the resultant gloom. Plus inflation is expected to climb this summer rather than fall. Greggs will also take a double cost hit from rising employer’s National Insurance and the 6.7% minimum wage hike, which both land in April.
The board is battling on, expanding its store footprint and extending trading hours, while investing in home delivery services too.
I’ve been following the shares for a while, but thought expectations were too high and the shares were too pricey. That’s not the case today.
Valuation down, dividend up
The Greggs share price has fallen 35% over the past year. As a result, its price-to-earnings (P/E) ratio has dropped from over 22 times to a far tastier 12 times.
Another positive is the higher dividend yield, which has crept up to 3.35%. I think Greggs is worth considering today.
The 12 analysts offering one-year share price targets for the stock have a median estimate of 2,344p, suggesting a potential 26% rise from today’s levels. Combined with the improved yield, this could deliver a total return of nearly 30%. But I’ll add a note of caution.
The sell-off may not be over yet. Someone who invested £10,000 a month ago would have seen their stake shrink by 13.5%, leaving them with just £8,650 today. That’s a £1,350 paper loss.
Greggs has got my juices flowing but there’s a risk that the days of unstoppable growth might be over for now.
