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The Greggs (LSE: GRG) share price had been beloved of growth investors for some time, and I really don’t understand why. Yes, it’s a successful high street bakery chain, and it’s become a regular favourite with customers.
But it’s a very competitive business, and it’s not really a very hard business model to emulate. Seeing Greggs shares peak at a price-to-earnings (P/E) valuation of over 30 back in late 2021 was really just too much, I feel. That’s up there with some AI tech growth stocks.
The Greggs share price is now below 50% of that high point. And on Tuesday (3 March) we had a set of 2025 full-year results that I think make it look much better value. So what’s in store now?
Mixed results
The results painted a mixed picture of 2025. Sales rose by 6.8% compared to 2024. But underlying profit before tax dropped 9.4%, with underlying earnings per share off by 10.7%.
Still, this was all largely in line with expectations. And at least operating cash inflow improved, up 4.6% on the previous year. The dividend was held at 69p per share, for a 4.4% yield on the previous day’s closing price.
The share price barely moved in response, but there really weren’t any surprises here. Looking forward, CEO Roisin Currie spoke of hopes that “easing inflationary pressures should provide some support to consumer spending and demand for convenient food-on-the-go continues to underpin the market.“
Margins squeezed
Greggs has been doing well with maintaining, and even growing, market share. And that, in part, comes from keeping prices as low as possible. But it hurts margins, with Greggs’ underlying operating profit margin falling to 8.7% in 2025, down from 9.7% the year before. The company suffered supply-cost inflation too, which really didn’t help.
So what should we look for in the years ahead? I expect steady, though not stellar, growth. And as inflation cools, I could see like-for-like sales picking up again.
If that’s what happens, it would be largely in line with broker forecasts. They’re often updated in the light of new results. But I don’t really expect much change this time considering the largely-as-expected outcome.
Analysts see modest earnings rises in the next couple of years, suggesting a P/E of about 12 by 2027 based on the current share price.
Valuation tight?
The problem for me is that I’d be happier seeing that kind of valuation today, with a prospect of a significant lowering over the next couple of years.
I expect a decent recovery from Greggs. And the past few years actually held something positive too.
We saw the food-to-go market is resilient, even in the face of the inflation we’ve suffered since 2020. The movement of the business more to cut-price competition does concern me, though.
I do think investors could do well to consider Greggs shares now, particularly if the progressive dividend keeps up. And we could see a new growth phase for the share price. But for me, I see better value options.
