Is now a great time to consider buying Greggs shares?

Things haven’t been easy for holders of Greggs (LSE: GRG) shares for a while now. Year-to-date, the company’s value has dropped by over a third. For comparison, the FTSE 250 index in which the company features is down ‘only’ 7%.

But is the fall in the food-on-the-go operator now overdone? Here’s my take.

What’s gone so wrong?

Back in January, Greggs reported that sales growth had slowed to 2.5% over the Christmas quarter. In the previous three-month period, growth had been at 5%. Consumer caution was blamed with CEO Roisin Currie adding that a challenging second half in 2024 would continue into 2025.

And so proved to be the case. Like-for-like sales rose only 1.7% in the first nine weeks of the year. Again, this was attributed to the cost of living. Bad weather also played a role.

Regardless of the cause, the market was never likely to be forgiving, especially as the shares traded at a premium to most UK companies.

Things could get worse

To be clear, there’s potential for Greggs shares to fall even more.

Perhaps most obviously, sales growth might continue to slow. This could be the case even if the UK manages to keep its head down during Trump’s trade tariff shenanigans. The point is that people are (still) feeling the pinch and will look to save money where they can. Its relatively low-priced items may provide some protection on this front but only so much.

There are other issues to bear in mind. This month’s rise in National Insurance contributions will hit company profits hard. While this has been known about for months, higher-than-expected costs elsewhere might compound the problem.

Reasons to consider buying

For balance, let’s consider a few arguments for making an investment now.

For one, there’s the valuation. Today’s forward price-to-earnings (P/E) ratio of 14, while not screaming value, is far more palatable than the mid-to-high 20s hit during 2024. Indeed, the latter was the chief reason I sold my position last summer.

Current issues aside, Greggs remains a fine business that has consistently generated stellar returns on the money it invests. Margins, while never likely to be spectacular, are still good for a company in the Consumer Cyclicals sector.

Sure, past performance can’t predict future returns and all that. But Greggs has weathered poor economic conditions before. I don’t see this changing.

There’s a nice income stream as well. Although never guaranteed, the business is down to dish out 67.8p per share in FY25. At the current share price, that becomes a dividend yield of 3.7%.

On the cost front, it’s worth also highlighting that Greggs is hardly drowning in debt. This fact should also allow it to continue expanding into untapped parts of the UK.

Low expectations

The last few months haven’t been kind to a lot of UK businesses or their shareholders and I’m not convinced we’ve seen the end to this run of bad form for Greggs just yet. The next update — due 20 May — will be key to restoring faith.

However, I also suspect expectations around trading are now more realistic. Any indication that sales are even slightly better than anticipated could bring out the buyers.

Taking a small bite now might prove too hard for me to resist.