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Pardon the pun, however Greggs (LSE:GRG) shares have taken an enormous chunk out of buyers’ wealth in current occasions. The FTSE 250 inventory has crashed 50% since August 2024!
Nevertheless, if the promoting has now gone too far, this might probably create strong returns for long-term buyers. So, is the inventory definitely worth the danger immediately?
Cooling demand
As I see it, there are two huge issues negatively impacting Greggs, in addition to an rising potential menace. First, Chancellor Rachel Reeves turned up the warmth in late 2004 when she elevated the Nationwide Dwelling Wage and Employer Nationwide Insurance coverage.
Using greater than 32,000 folks, Greggs was considerably impacted and subsequently hiked costs on some gadgets, together with sausage rolls. Elevating costs when many shoppers are already struggling financially isn’t ultimate.
Second, the additional burden on employers has had a chilling impact on an already fragile economic system. The Nationwide Institute of Financial and Social Analysis is forecasting that unemployment will common 5.4% in 2026, up from 4.8% final yr.
Ben Caswell, an economist on the assume tank, mentioned: “A part of this unemployment story within the UK is rising labour prices.”
The rising potential menace I discussed is GLP-1 weight-loss medication. Analysts at Jefferies say that weaker shopper spending and unfavourable climate can’t alone clarify Greggs’ extended gross sales downturn, with GLP-1s doubtless a part of the image too.
As many as 1.7m folks within the UK are taking these appetite-suppressing medication immediately, with hundreds of thousands extra contemplating them in future. Novo Nordisk has lately had a day by day Wegovy capsule accredited within the US, which might see many individuals terrified of needles contemplate the remedy.
Mark your calendars
All this has impacted Greggs’ numbers. Within the first half of 2024, complete gross sales rose 13.8%, with like-for-like gross sales in company-managed outlets up 7.4%. In the identical interval in 2025, these figures have been 7% and a couple of.6%, respectively. A large drop-off.
Shareholders will get Greggs’ preliminary outcomes for the 52 weeks to 27 December on 3 March. Metropolis analysts anticipate income to climb roughly 7% to £2.15bn, largely resulting from new store openings (round 120).
Nevertheless, money flows and earnings are anticipated to slide as Greggs invests closely in new distribution centres and absorbs larger prices. Subsequently, shareholders ought to give attention to administration’s steerage for 2026 and any medium-term commentary.
This must be comparatively constructive or else the inventory might stay within the doldrums for some time longer. Buyers will wish to see proof that the brand new GLP-1-friendly menu is resonating with prospects.
Is out-of-favour Greggs worthy of consideration?
Weighing issues up, I feel Greggs nonetheless has lots going for it. The steadiness sheet, whereas briefly weakened resulting from progress initiatives, remains to be essentially wholesome. Administration expects a return to constructive money era in 2026 as capital expenditures peak.
Furthermore, the bakery chain remains to be rising complete and like-for-like gross sales, regardless of all of the challenges. And there’s a 4.4% dividend yield on supply for buyers as they await a turnaround.
If an investor’s keen to look previous this rocky patch to the long run (our most popular funding horizon right here at The Motley Idiot), I feel the inventory might do nicely. Greggs’ distinctive model, robust steadiness sheet, rising retailer rely, and low valuation make this one to think about.
