Picture supply: Getty Photographs
Greggs’ (LSE: GRG) shares are down 24% from their 21 Might one-year excessive of £22.02. However I feel that is method out of sync with the energy of the underlying enterprise.
This options regular development, resilient demand, and a significant model within the UK food-on-the-go market. These components underpin strong earnings development forecasts that might drive the shares a lot increased over time.
So, the place ought to the inventory be buying and selling, for my part?
Earnings development
A danger to Greggs’ earnings is the extraordinary competitors within the sector, which may squeeze its margins. Nonetheless, analysts anticipate earnings to develop by an annual common of seven% to end-2028.
Its 2024 outcomes confirmed document gross sales of £2.14bn and document income of £203.9m. It overtook McDonald’s because the UK’s high breakfast takeaway in 2023 and has retained that place.
Its H1 2025 replace noticed gross sales rise 6.9% yr on yr to £1.03bn. And its This autumn outcomes noticed gross sales up 7.4%.
A cut price relative to friends?
To gauge whether or not Greggs is undervalued, I began by evaluating its key valuations with these of its opponents.
At a price-to-earnings ratio of 11.5, Greggs sits in the midst of a hospitality peer group, which averages 16.2. This consists of Mitchells & Butlers at 9, JD Wetherspoon at 10.6, Whitbread at 18.4, and McDonald’s at 27.
So, on this measure, it appears to be like undervalued. The identical is true of its 0.8 price-to-sales ratio, in comparison with its opponents’ common of two.8.
Over and above this, there’s a structural downside with all relative (between corporations) valuations to think about. A sector-wide over- or undervaluation can obscure whether or not one firm is genuinely low-cost or costly.
The UK shopper discretionary sector — the place Greggs sits — is buying and selling at a 15%-25% low cost to its three-year common. So, a number of corporations in it are possible extra undervalued on a standalone foundation than they seem from headline numbers.
What’s Greggs actually price?
To unravel Greggs’ true worth, I ran a discounted money‑circulation (DCF) evaluation. This estimates ‘truthful worth’ by projecting future money flows and discounting them again to as we speak.
This supplies a clear, standalone valuation that’s not distorted by whether or not the broader sector is over-‑ or undervalued.
In Greggs’ case, I used a reduction charge of 9.4%, and a perpetual development charge of three% (the five-year common UK 10-year gilt yield). The mannequin additionally components within the analysts’ consensus earnings development forecasts for Greggs of 6.8% a yr. Different DCF fashions could use completely different inputs, which may produce decrease valuations.
Nevertheless, based mostly on these numbers, my modelling suggests Greggs shares are 46% undervalued at their present £16.74 value.
That means a good worth of £31 — approaching double the place the inventory trades as we speak.
Thus hole between value and worth is necessary, as asset costs are inclined to converge to their truthful worth over time. So it suggests a doubtlessly terrific shopping for alternative to contemplate if these DCF assumptions maintain.
My funding view
Over 50 now, I prioritise shares with a lot increased dividend yields to assist fund my retirement, and Greggs’ modest 4.1% payout doesn’t match that technique.
Even so, the valuation hole and long-term development outlook make it a inventory many buyers could wish to take into account.
Picture supply: Getty Photographs
Greggs’ (LSE: GRG) shares are down 24% from their 21 Might one-year excessive of £22.02. However I feel that is method out of sync with the energy of the underlying enterprise.
This options regular development, resilient demand, and a significant model within the UK food-on-the-go market. These components underpin strong earnings development forecasts that might drive the shares a lot increased over time.
So, the place ought to the inventory be buying and selling, for my part?
Earnings development
A danger to Greggs’ earnings is the extraordinary competitors within the sector, which may squeeze its margins. Nonetheless, analysts anticipate earnings to develop by an annual common of seven% to end-2028.
Its 2024 outcomes confirmed document gross sales of £2.14bn and document income of £203.9m. It overtook McDonald’s because the UK’s high breakfast takeaway in 2023 and has retained that place.
Its H1 2025 replace noticed gross sales rise 6.9% yr on yr to £1.03bn. And its This autumn outcomes noticed gross sales up 7.4%.
A cut price relative to friends?
To gauge whether or not Greggs is undervalued, I began by evaluating its key valuations with these of its opponents.
At a price-to-earnings ratio of 11.5, Greggs sits in the midst of a hospitality peer group, which averages 16.2. This consists of Mitchells & Butlers at 9, JD Wetherspoon at 10.6, Whitbread at 18.4, and McDonald’s at 27.
So, on this measure, it appears to be like undervalued. The identical is true of its 0.8 price-to-sales ratio, in comparison with its opponents’ common of two.8.
Over and above this, there’s a structural downside with all relative (between corporations) valuations to think about. A sector-wide over- or undervaluation can obscure whether or not one firm is genuinely low-cost or costly.
The UK shopper discretionary sector — the place Greggs sits — is buying and selling at a 15%-25% low cost to its three-year common. So, a number of corporations in it are possible extra undervalued on a standalone foundation than they seem from headline numbers.
What’s Greggs actually price?
To unravel Greggs’ true worth, I ran a discounted money‑circulation (DCF) evaluation. This estimates ‘truthful worth’ by projecting future money flows and discounting them again to as we speak.
This supplies a clear, standalone valuation that’s not distorted by whether or not the broader sector is over-‑ or undervalued.
In Greggs’ case, I used a reduction charge of 9.4%, and a perpetual development charge of three% (the five-year common UK 10-year gilt yield). The mannequin additionally components within the analysts’ consensus earnings development forecasts for Greggs of 6.8% a yr. Different DCF fashions could use completely different inputs, which may produce decrease valuations.
Nevertheless, based mostly on these numbers, my modelling suggests Greggs shares are 46% undervalued at their present £16.74 value.
That means a good worth of £31 — approaching double the place the inventory trades as we speak.
Thus hole between value and worth is necessary, as asset costs are inclined to converge to their truthful worth over time. So it suggests a doubtlessly terrific shopping for alternative to contemplate if these DCF assumptions maintain.
My funding view
Over 50 now, I prioritise shares with a lot increased dividend yields to assist fund my retirement, and Greggs’ modest 4.1% payout doesn’t match that technique.
Even so, the valuation hole and long-term development outlook make it a inventory many buyers could wish to take into account.
