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Greggs (LSE:GRG) shares jumped 7% in trading on Tuesday (20 May) after reporting its Q1 results. The push upwards indicates that the market was largely impressed by the company’s performance.
Greggs reported a 7.4% increase in sales for the first 20 weeks of the year. That suggests business was picking up after a slow start. However, much of this increase was driven by a rising store count — reaching 2,638.
A close look at the results shows that, on a like-for-like basis, sales were up just 2.9%. However, Greggs is currently anticipating cost inflation to be around 6% on a like-for-like basis for the year.
All-in-all, I’m not seeing much to entice me to buy the stock. What’s more, there’s something in the company’s recent narrative that’s a little unconvincing.
It had previously pointed to poor weather conditions as the reasoning for its slow start to the year. But in the latest trading update, the firm pointed to a strong contribution from product innovations. That’s despite the weather really improving since March.
For context, like-for-like sales in company-managed shops increased 1.7% year-on-year in the first nine weeks of 2025, when poor weather dented footfall.
Still value for money?
Greggs’ forward price-to-earnings (P/E) ratios are projected at 16.2 times for 2025, 15.7 for 2026, and 15 for 2027. This tells us the shares trade at a premium to the index average.
Despite a rising dividend (yielding 3.14% in 2025 and 3.46% in 2027), the dividend-adjusted price-to-earnings-to-growth ratios remain elevated — around 1.8 — indicating limited earnings growth relative to valuation.
Net debt’s also rising, from £366.4m in 2025 to £375.8m in 2026, before easing to £341.8m in 2027. For me, Greggs appears overvalued on a dividend-adjusted growth basis. That’s based on the metrics and not my broader concerns about the company’s positioning.
Growth trends and healthy eating
As noted, much of Q1 growth was powered by aggressive store expansion, with plans for 140-150 net new openings in 2025 alone. This strategy, while effective for now, has natural limits. There are only so many viable sites in the UK, and such rapid expansion cannot continue indefinitely.
Attempts to expand internationally haven’t succeeded in the past, and I’d suggest the product positioning would struggle to be anymore more than a niche offer in Europe or the US.
Personally, I’m also concerned about the durability and longevity of the baked goods market. While affordable, widespread and frequent consumption has an impact on the health of the nation. And while our waistlines are being attacked by Mounjaro and Wegovy, one day regulation and taxation could be the weapons of choice.
We have a fairly low bar for healthy foods in the UK, but I think that tells us just how much tastes can change. I’d argue that in an increasingly health-conscious nation, with slowly improving living standards, brands like Greggs will lose out in the long run.
It’s not a stock I’m looking to buy right now.
