Greggs‘ (LSE:GRG) shares had a terrible 2025, plummeting 39%. In 2026 however, they’ve bounced back strongly.

Indeed, Greggs is on course for its best year since 2021 — it’s up roughly 37%. That’s well above the FTSE 250‘s 9% return so far this year.

To put that into context, it’s enough to have turned a £5,000 investment made in early January into about £6,850. Dividends would have taken the return above £7,000. Nice.

The question now is, can Greggs serve up similarly tasty returns over the next 12 months?

Key update

The event that sent the stock soaring was a Q3 trading update at the end of September (Greggs is up about 23% since then). In this, the baker said total sales rose 7.7% for the 13 weeks to 26 September, and 7.4% for the 39 weeks to then.

Like-for-like sales in company-managed shops for the 13 weeks were up 3.4%. That was higher than previous updates, which management put down to continued menu innovation — including matcha drinks and the new Steak & Stilton Bake — and more settled weather.

As a result, Greggs expects a “modestly improved” outcome for 2026. Before this, City analysts were expecting full-year pre-tax profit of roughly £176m.

It’s worth noting that Greggs was the second most-shorted UK stock in March (hedge funds and other asset managers betting that it would keep falling). However, since last month’s update, short interest has fallen substantially.

Is Greggs still cheap?

Now, at the beginning of the year, I was convinced Greggs’ stock was too cheap. It had crashed nearly 50% in 18 months and the price-to-earnings (P/E) ratio had fallen below 12, down from 22 in 2024 (when it was pricey).

For an established company with a strong brand and millions of loyal followers, that looked too low to me. There was a 4.3% dividend yield too.

Now though, the P/E ratio has crept up to 17.9 and the yield has dipped to 3%. I don’t think that’s overly expensive, but it’s not the obvious bargain I thought it was in January.

This seems to be the view of City brokers, whose average price target is 16% below where Greggs is today. Therefore, I’m not convinced the stock will rise too much higher over the next 12 months.

The easy money has probably been made.

Uncertainty

Greggs has invested heavily in two new state-of-the-art distribution centres to support a store estate of at least 3,500. In September, it had 2,796 shops.

These new facilities are expected to result in higher costs next year, while Greggs is also bracing for the impact of inflation. Therefore, some uncertainty remains for 2027, and that’s before we consider the impact on consumers’ wallets.

What about beyond 2027?

Looking beyond next year though, things should improve. By then, Greggs expects to start seeing the benefits of its investments in terms of higher profits and cash flow generation. This should support dividends and potentially share buybacks.

You would also hope that the Middle East conflict will be over by then, and that the cost-of-living crisis will have eased. This might boost footfall and sales.

For long-term investors, I think Greggs’ stock’s still worth considering, especially for those willing to buy on dips along the way. But I wouldn’t pile in today.

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Ben McPoland has no position in any of the companies mentioned.