Greggs (LSE: GRG) shares have swung from market darling to cautionary tale over the past two years, leaving investors wondering what comes next.
The Newcastle bakery chain once captivated investors as it reinvented itself from a tired high street staple into a national food-on-the-go powerhouse.
Cult products like the vegan sausage roll grabbed headlines and fuelled a growth story that pushed the price-to-earnings ratio above 23 at its peak.
At that height, the dividend yield sank close to 2% as growth-hungry investors piled in, seemingly convinced the expansion had no ceiling.
Then reality arrived, and the cost-of-living crisis slowed the rampant sales growth that had made Greggs a stock market favourite for years.
Rising inflation compounded the pressure, pushing up energy bills, minimum wage obligations, and employer National Insurance contributions that further squeezed margins.
Full-year 2025 results showed total sales rose 6.8% to £2.2bn, supported by 121 net new stores, but like-for-like sales grew a more modest 2.4%.
Free cash flow dropped from £104m to £75m, net cash fell from £125m to £46m, and the board froze the dividend at 69p after years of consistent growth.
Underlying pre-tax operating profit also retreated to £187.5m in 2025, down from £195.3m in 2024, though still well ahead of the £153.8m recorded in 2021.
Sentiment improved after Greggs issued a trading update on 12 May, showing sales climbed 7.5% to almost £800m in the period covered.
Like-for-like sales ticked up marginally to 2.5%, and management held full-year guidance, saying underlying operating profit should broadly match last year’s £188m.
Greggs shares jumped on that update and now trade almost 14% higher over one month, despite dipping in the most recent week as broader market nerves returned.
The shares remain down 18% over 12 months, which means a potential buying opportunity still exists for investors willing to look past the near-term noise.
Valuations look far less stretched than before, with the price-to-earnings ratio dropping to 13.9 and the trailing dividend yield climbing to 4.17%.
The company continues to pursue growth by rolling out new stores, extending opening hours, adapting menus, and expanding through franchise partnerships that help reduce operating costs.
Management also locked in roughly 85% of energy costs for the current year, providing some protection against volatility in oil and energy markets.
The risks, however, remain real, with a weak economy, persistent inflation squeezing consumer incomes, and rising unemployment all threatening demand for affordable treats.
Greggs still relies heavily on British consumers having spare cash to spend, and that spending power looks fragile across much of the country right now.
At today’s valuation, the shares are considerably more tempting than they have been for some time, though questions remain about whether the brand’s best growth days are behind it.
The central debate for investors is whether Britain has yet reached what some analysts might call peak Greggs, or whether the chain still has meaningful runway left ahead.
