Are Greggs shares cheap enough to consider buying?

Greggs‘ (LSE:GRG) shares have lost around half of their value over the past 12 months. And I think that’s probably fair. I thought the stock was trading at unbelievably high multiples for a company that has already conquered most of the UK geographically, and makes a tasty but not overly innovative products.

The valuation we have today is much more acceptable, but arguably still above what could be considered fair value. The company’s forward price-to-earnings (P/E) ratio is 13.1 times. This figure’s expected to fall to 12.4 times in 2026 and then 11.8 times in 2027. This demonstrates moderate growth throughout the medium term.

Of course, the P/E ratio’s never the whole picture. A more complete equation must take into account net debt, dividend yields (sustainable ones) as well as other factors like profitability metrics.

A fuller picture

With the Greggs share price falling in half, the dividend yield has been pushed up to 4.2%. That’s above the UK average and represents a decent rate of return, above most savings accounts. However, analysts aren’t pointing towards much or any improvement in dividend payments in the coming years, and thus the yield is based on today’s price.

Net debt’s relatively modest, although worth noting. It sits at around £400m, which now represents around 25% of the company’s market-cap. A year ago, net debt was smaller and only around 7% of the company’s market-cap. While there’s little to suggest that net debt to equity will worsen substantially — it’s expected to remain flat and I can’t predict the share price — it’s still a more concerning situation than a year previous.

Margins have unsurprisingly come under pressure as well. Inflation’s put costs under pressure in recent years, but the budget added to that pressure, notably increasing the cost of employment, especially for Minimum Wage staff.

In the 26 weeks to 28 June, Greggs’ operating profit margin was around 6.8%, calculated from £70.4m operating profit on £1,027.7m sales, compared with 7.9% the prior year (£75.8m on £960.6m).

Fighting trends

My colleagues and I have previously considered the potential impact of GLP-1 (weight loss) drugs on Greggs’ market. And surprisingly, the business is responding. CEO Roisin Currie said the rise in GLP-1 weight-loss medication usage in the UK is having an observable impact on food consumption patterns. As such, Greggs has introduced more protein-rich, portion-controlled options, targeting diners seeking high satiety, lower-calorie choices.

But while Greggs says 30% of its product range is now “healthy”, I’m still not convinced by the company’s positioning in an increasingly health-conscious market place. This may impact long-term growth. I suspect the real winners in the food-to-go sector will be those able to combine genuinely healthy options with affordability for price-conscious customers.

And with all of this in mind, I still don’t believe Greggs is worth considering. However, I’ll definitely reassess if the stock falls further.