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Greggs‘ (LSE: GRG) shares have tanked just lately. Over the past 15 months, they’ve fallen about 50%. So may they be a prime turnaround play for 2026? Let’s check out the set-up.
A strong enterprise
Greggs is an honest enterprise. For a begin, it has a really robust model. Everybody is aware of this food-on-the-go firm. Typically talking, it’s trusted by customers and seen nearly as good worth.
The retailer can also be fairly worthwhile. Sometimes, return on capital employed (ROCE) is about 20%, which means that it’s much more worthwhile than the common UK enterprise.
Given this excessive return on capital, the corporate has the monetary firepower to open extra retailers previously. In different phrases, it’s been in a position to reinvest its earnings to drive development.
Because of this compounding technique, the corporate’s put collectively a strong development monitor report. Between 2014 and 2024, for instance, internet revenue rose from £38m to £153m.
Trying forward, Greggs is planning to open extra retailers. This yr, it’s concentrating on 120 new openings (it had 2,739 on the finish of 2025).
The shares look low cost
Now at present, Greggs shares look fairly low cost from a valuation perspective. At the moment, the price-to-earnings (P/E) ratio right here is about 13 – a comparatively low earnings a number of for a high-quality enterprise. However there are causes for the low a number of. One is that Greggs’ current efficiency has been fairly poor.
Because of weak ranges of client spending, altering consuming habits (resulting from GLP-1 weight-loss medication), and better prices, the corporate’s posted a lot of revenue warnings. These have led to a downward valuation re-rating for the shares.
Word that earlier this month, the corporate instructed traders that revenue for 2026 is more likely to be flat yr on yr (sending the share value down about 7%). It blamed low client confidence for the underwhelming outlook together with prices associated to its provide chain.
Lengthy-term potential?
Is there scope for an enchancment in efficiency and a pickup within the share value in the long run? I feel so. Decrease rates of interest within the UK may unlock disposable revenue. In the meantime, menu enhancements (eg extra give attention to protein) may assist to spice up the enchantment of its providing.
That stated, I’m unconvinced that now’s the perfect time to think about shopping for right here. The rationale why is that the inventory’s ‘brief curiosity’ is extraordinarily excessive. Because of this many monetary establishments are betting that the shares will fall from right here.
These establishments clearly see additional share value weak spot forward (anticipating extra weak buying and selling updates all through 2026).
Higher alternatives out there?
I’ll level out that brief sellers (those that wager that shares will fall) don’t all the time get it proper. However they very often do, as they have a tendency to do lots of analysis.
Personally, I’ve been burnt by heavily-shorted shares previously. So I’ll be steering away from Greggs shares for now. In my opinion, there are higher shares on the market to think about shopping for.
