£10,000 invested in Greggs shares 1,535 days ago is now worth…
Long-term holders of Greggsâ (LSE:GRG) shares will look back on 30 December 2021 with fond memories. That was the day the bakerâs shares reached their all-time high of £34.43.
Since then, annual sales have risen 75% but its shares have tanked. And now the group holds the dubious honour of being the UKâs most shorted stock. What on earthâs going on?
Then and now
Towards the end of 2021, the UK economy had moved on from the worst of the pandemic and was starting to grow again. Fewer people were working from home and the countryâs high streetâs were becoming busier. One of the beneficiaries of this was Greggs. During the 52 weeks to 2 January 2021 (FY21), its sales soared 51.7% year-on-year.
Every year since, its sales have increased. However, that rate of increase has slowed. In FY25, its top line grew by 6.8%. On a like-for-like basis, revenue was up 2.4%.
| Financial year | Total sales growth (%) | Like-for-like sales growth (%) | Underlying profit before tax (£m) | Underlying earnings per share (pence) |
|---|---|---|---|---|
| 2021 | 51.7 | 52.4 | 145.6 | 114.3 |
| 2022 | 23.0 | 17.8 | 148.3 | 117.5 |
| 2023 | 19.6 | 13.7 | 167.7 | 123.8 |
| 2024 | 11.3 | 5.5 | 189.8 | 137.5 |
| 2025 | 6.8 | 2.4 | 171.9 | 122.8 |
But life as a listed company can be tough. Investors expect Britainâs biggest companies to grow faster than this. And they like to see an improving trend. Greggs’ disappointing share price performance illustrates what happens when a company fails to live up to expectations.
Anyone unfortunate enough to have bought £10,000 of shares on 30 December 2021, will probably be cursing their decision. These shares are now worth £4,923. Ouch! However, they have received some reasonably generous dividends since. Although the bakerâs payouts can be erratic, the stockâs currently yielding 4.1%, based on amounts paid over the past 12 months.
An over-reaction?
However, I think the decision by investors to punish Greggs so harshly is a little unfair. After all, the groupâs FY25 underlying earnings per share (EPS) was 7.4% higher than in FY21. The stock now trades on 13.8 times FY25 earnings.
When its shares were at their peak, it had a price-to-earnings ratio of more than 30. On this basis, Greggs looks significantly undervalued. But again, critics will point to the trend in its top line as a reason to be cautious.
But thereâs no point being a lone voice. No matter how cheap I think the groupâs stock might be, if lots of other investors disagree, Iâm going to lose money by taking a stake. Indeed, the 14 investment firms who borrowed 13.48% of the companyâs stock in the expectation (hope?) that its share price will fall, believe thereâs more bad news to come for longstanding shareholders.
Of course, this just reflects one point of view. They may all be wrong.
The (slimming) elephant in the room
However, I suspect most can agree that a trend towards healthier eating could be a problem. The group acknowledges that weight-loss jabs are currently affecting the business. Itâs observed a trend towards smaller portions and people looking for protein and fibre rather than sugar and fat. Greggs has adapted its menu accordingly but the juryâs out as to the long-term impact of these drugs on its business.
On paper at least, Greggs shares look cheap, which makes them tempting to the bargain-hunter in me. But I donât want to invest. I’d like to see some evidence that the group can grow faster and it can see off the threat of fat jabs. Until then, I think there are better opportunities to consider elsewhere.Â
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More reading
- What on earthâs happening to the Greggs share price?
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James Beard 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.
