After falling by 40% in six months, the Greggs (LSE: GRG) share price is looking deeply unloved. Investors have taken fright as the sausage roll specialist has reported slowing sales growth.
It’s not a pretty picture. But the stock market is known for its dramatic mood swings. Has the recent sell-off gone too far? I can certainly see some reasons to think so.
On a forward price-to-earnings ratio of just 14, my research suggests Greggs shares are currently cheaper than they’ve been for 10 years.
The company’s operating profit margin also remains above average for this sector, at 10%. Efficient operations and a lack of bank debt helped the business generate a return on equity of 28% last year – a very strong figure.
And the business is still growing. Sales rose by 11% last year to just over £2bn, supporting an 8% rise in pre-tax profit to £204m. These numbers are very respectable and do not seem to suggest a business that’s in decline.
So why have Greggs shares been falling?
The stock market is all about the future, not the past. As far as I can see, the main reason why Greggs’ share price has been falling is that investors are starting to wonder if the company’s growth has peaked.
After all, last year’s 11% sales rise was supported by 145 net new store openings.
Sales in stores that have been open for more than a year rose by just 5.5%. That compares to an equivalent growth figure of 13.7% in 2023.
Worse still, the company said that in the first nine weeks of 2025, so-called like-for-like sales growth slowed to just 1.7%. It blamed bad weather in January, but sales growth has now been slowing for more than a year.
I wonder if Greggs could be reaching a natural limit on its size. After all, the company now has more than 2,600 shops in the UK. That’s roughly the same as Costa Coffee and nearly 50% more than McDonald’s.
Why I’m tempted to buy
Yet I think Greggs is an excellent food-to-go operator and a brilliant marketing organisation. I expect it will remain successful.
Although I do expect growth to slow over the coming years, I think the shares could still be a profitable investment at the right price.
So, is the price right for me today? The shares are currently trading on a forward P/E of 14 with a 3.6% dividend yield. As I mentioned at the start, I reckon this is probably the cheapest they’ve been for around 10 years.
However, I can’t ignore the possibility that Greggs could face a difficult year ahead, perhaps triggering a cut to earnings forecasts.
It’s possible that I’m being too cautious. But for an extra margin of safety, I’d like to see some sign that slowing sales growth has levelled out before I decide to invest. Greggs will stay on my watchlist for a little longer.
This post was originally published on Motley Fool
