Why Greggs shares crashed 40% in 2025

The last year was one to forget for Greggs‘ (LSE:GRG) shareholders. But there are two big questions investors need to ask.

One is whether the underlying business is 40% worse than it was a year ago. The other is whether the stock’s worth considering right now. 

What’s gone wrong?

At first sight, 2025 didn’t look like a bad year for Greggs the business. The firm had more stores and revenues climbed around 6.7% during the first nine months of the year.

Under the surface though, there are two issues. The first is the majority of the sales growth had been driven by new store openings – without this, sales growth had been more like 2.2%. 

That’s below inflation. And this raises concerns about how long the company’s going to be able to keep generating sales growth by opening new stores. The second issue is that the firm’s operating income had actually fallen during this time as a result of higher costs weighing on margins and profits. But the decline was 7% – not 40%

Why’s the stock down?

The biggest reason Greggs shares have fallen isn’t the underlying business. It’s the fact that investors have changed their view of the company’s growth prospects. 

At the start of 2025, the stock was trading at a price-to-earnings (P/E) multiple of 20. But investors aren’t willing to pay that for declining profits, so it’s fallen to 11. 

Management’s attributed some of the weakness to difficult trading conditions. This has included an unusually warm summer and an unusually wet winter. 

If this reverts back to normal in 2026, the year ahead could be much more positive. But I think there’s another – more interesting – reason to take a look at the stock right now.

Passive income

It’s unusual to find Greggs shares trading with a dividend yield above 4%. And I think there might be significant scope for the company to increase its shareholder distributions. Right now, the firm returns less than 50% of its net income to investors. That makes sense while it’s continuing to open new stores to boost scale and revenues. 

Investors are concerned that this can’t go on indefinitely – and I think they’re right to be. But if that’s the case, then the business won’t have the same capital requirements going forward. Without the need to keep spending on new venues, the company might well be in a position to return more cash to shareholders. And I think that could well mean future dividend growth.

A buying opportunity?

Greggs’ shares have fallen 40% in the last year, but I think the firm’s core strengths are still very much intact. There isn’t another competitor that can match the value it offers consumers.

The company’s scale means it has lower costs than its rivals and that’s a big advantage. The only question is how much investors should be willing to pay for the stock.

I thought a P/E ratio of 20 was much too high given the firm’s growth prospects. But after a 40% decline, I think it’s well worth considering, especially for passive income investors.

The post Why Greggs shares crashed 40% in 2025 appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Greggs Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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