Greggs (LSE: GRG) shares have surged nearly 30% from their November lows, yet the FTSE 250 stock remains down 40% over the past two years.
The bakery chain is also one of the most shorted stocks in the UK, meaning sophisticated investors are actively betting on further declines ahead.
With consumer spending still under pressure and high street footfall continuing to struggle, the question of whether the stock could fall another 50% is gaining traction among market watchers.
When ChatGPT was asked to assess this scenario, it concluded: “I don’t think a 50% crash is the most likely outcome based on the numbers we have today.”
The half-year figures referenced in that assessment paint a broadly positive picture, with sales up 7.2% to £1.1bn and operating profit rising 22.9% to £86.5m.
Greggs also recorded 34 net new shop openings in the period, bringing its total estate to 2,773 locations across the country.
For a 50% collapse to materialise, the AI outlined several conditions that would need to occur, including like-for-like sales turning negative, profit margins collapsing, new-store returns deteriorating, and management repeatedly cutting guidance.
None of those scenarios appear imminent, as like-for-like sales in company-managed shops actually rose 2.1% in the first half, and new openings are not cannibalising existing store sales according to company data.
Management did flag that second-half costs would rise due to a major new national distribution centre opening in Derby and ongoing wage inflation, though pre-tax profits are still expected to remain broadly flat for the full year.
The stock’s forward price-to-earnings ratio currently sits at 14.5, broadly in line with the wider FTSE 250, suggesting there is little speculative premium left to unwind after two years of sustained declines.
One factor the AI did not address is the dividend, with Greggs carrying a solid payout track record outside of the pandemic period and a forward-looking yield of 3.8% that many income investors will find attractive.
Rather than clinging to traditional high street locations, Greggs is strategically repositioning itself in transport hubs, motorway service stations, airports, train stations, and supermarkets where consumer traffic remains robust.
The company has even opened a shop at Tenerife South Airport, which management reports has started strongly, with further overseas travel hub locations actively being explored.
On the retail product side, more of Greggs’ frozen food range is now being sold through Tesco and Iceland, broadening the brand’s reach beyond its physical shop estate significantly.
Longer-term growth ambitions remain firmly in place, with the company targeting at least 3,500 UK shops supported by two new state-of-the-art distribution centres, including the Derby facility featuring robotic frozen goods picking technology.
These capital investments are expected to drive productivity gains and strong returns on capital, and as expenditure related to the buildout eases, Greggs anticipates being in “a position to increase returns to shareholders.”
For investors with a five-year horizon, the combination of a compressed valuation, a credible growth strategy, and a reliable dividend makes Greggs worth serious consideration at current levels.
