Issues haven’t been simple for holders of Greggs (LSE: GRG) shares for some time now. 12 months-to-date, the corporate’s worth has dropped by over a 3rd. For comparability, the FTSE 250 index by which the corporate options is down ‘only’ 7%.

However is the autumn within the food-on-the-go operator now overdone? Right here’s my take.

What’s gone so improper?

Again in January, Greggs reported that gross sales development had slowed to 2.5% over the Christmas quarter. Within the earlier three-month interval, development had been at 5%. Shopper warning was blamed with CEO Roisin Currie including {that a} difficult second half in 2024 would proceed into 2025.

And so proved to be the case. Like-for-like gross sales rose only one.7% within the first 9 weeks of the yr. Once more, this was attributed to the price of residing. Unhealthy climate additionally performed a task.

Whatever the trigger, the market was by no means more likely to be forgiving, particularly because the shares traded at a premium to most UK firms.

Issues might worsen

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

Maybe most clearly, gross sales development may proceed to sluggish. This might be the case even when the UK manages to maintain its head down throughout Trump’s commerce tariff shenanigans. The purpose is that persons are (nonetheless) feeling the pinch and can look to save cash the place they’ll. Its comparatively low-priced gadgets could present some safety on this entrance however solely a lot.

There are different points to remember. This month’s rise in Nationwide Insurance coverage contributions will hit firm earnings exhausting. Whereas this has been identified about for months, higher-than-expected prices elsewhere may compound the issue.

Causes to contemplate shopping for

For steadiness, let’s take into account a number of arguments for investing now.

For one, there’s the valuation. Right this moment’s ahead price-to-earnings (P/E) ratio of 14, whereas not screaming worth, is much extra palatable than the mid-to-high 20s hit throughout 2024. Certainly, the latter was the chief purpose I offered my place final summer season.

Present points apart, Greggs stays a high quality enterprise that has persistently generated stellar returns on the cash it invests. Margins, whereas by no means more likely to be spectacular, are nonetheless good for an organization within the Shopper Cyclicals sector.

Positive, previous efficiency can’t predict future returns and all that. However Greggs has weathered poor financial situations earlier than. I don’t see this altering.

There’s a pleasant revenue stream as properly. Though by no means assured, the enterprise is down to dish out 67.8p per share in FY25. On the present share price, that turns into a dividend yield of three.7%.

On the price entrance, it’s price additionally highlighting that Greggs is hardly drowning in debt. This truth also needs to permit it to proceed increasing into untapped elements of the UK.

Low expectations

The previous few months haven’t been type to a number of UK companies or their shareholders and I’m not satisfied we’ve seen the tip to this run of dangerous type for Greggs simply but. The subsequent replace — due 20 Could — can be key to restoring religion.

Nonetheless, I additionally suspect expectations round buying and selling at the moment are extra real looking. Any indication that gross sales are even barely higher than anticipated might carry out the consumers.

Taking a small chunk now may show too exhausting for me to withstand.