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Greggs (LSE:GRG) has long been a darling of the UK high street. Its reputation for value-for-money sausage rolls and pastries has made it a household favourite. However, Greggs shares have been sliding and quite rightly so, in my opinion. But after a bruising start to the year, it’s worth asking is there any reason to consider buying the stock?
FTSE 250 laggard
This year, Greggs’ shares have been among the FTSE 250’s worst performers, slumping by over 35%. The sell-off has been driven by a cocktail of slowing sales growth, rising costs, and investor nerves about whether the company’s rapid expansion can deliver the same returns as in the past.
Like-for-like sales growth slowed to just 1.7% at the start of 2025, although improved trading conditions later in the year lifted this to 2.9% by May. Despite record revenues in 2024 and a pipeline of new store openings — management remains confident of adding 140-150 net new shops in 2025 — the growth story has hit a speed bump.
One of the main challenges for Greggs is cost inflation. The company faces an estimated £45m in extra wage and National Insurance costs this year, equivalent to around 22% of last year’s pre-tax profit.
And while Greggs is investing heavily in a new supply chain infrastructure, which will support long-term growth, these extra costs are expected to compress margins in the short term. These challenge have led to a consensus opinion that profits for 2025 will be flat or slightly down. That’s despite an expected 8% rise in revenue.
Improving valuation
The valuation’s now more attractive than it has been in years. The forward price-to-earnings ratio’s dropped to around 13 times for 2025. This falls further to 12.4 times in 2026 and 12 times in 2027.
This is well below the multiples investors paid during Greggs’ boom years and brings the shares in line with more mature, slower-growing retailers. The dividend yield‘s now the stock’s main attraction, with a forecast of nearly 4% for 2025. It rises above 4% in the following years and is well covered by earnings and supported by strong cash generation. For income investors, this is a genuine bright spot.
The bottom line
For all the talk of growth and brand strength, Greggs remains, at its core, a sausage roll maker. While the company’s ambitious expansion into drive-throughs and transport hubs could unlock new markets, the valuation still looks a little rich. Especially for a business so exposed to the UK’s cost-of-living pressures and wage inflation.
Personally, it’s not an investment I’m going to consider. However, I appreciate some investors may value the company’s above-average and growing dividend yield. In the end though, I believe the shares are a little pricey for what they might offer.
