Greggs’ shares have jumped about 18% over the past month, driven by a strong first-half performance and renewed investor confidence. The bakery chain reported better-than-expected profits, expanded its store network, and kept costs under control despite a tough consumer backdrop.
But with the price now higher, a key question remains: are the shares still undervalued?
Strong H1 2026 results and growth drivers
In the first half of 2026 (to 27 June), Greggs surprised investors with expectation-beating results. Pre-tax profit soared 19.7% to £76m and revenue jumped 7.2% to £1,101.5m. But most impressive was the rise in operating profit, up 22.9% to £86.5m.
The improved results were supported by like-for-like sales which enjoy a 2.1% increase, driven by new stores and grocery partnerships.
The company’s management cited its modern menu upgrade as a key driver of the recovery. New items such as a chicken roll and matcha drinks have resonated with younger customers, while healthier options like a chicken Caesar salad cater to evolving tastes.
The brand’s first international outlet at Tenerife South Airport has also had a “promising start“, offering a low-risk test of overseas demand.
On the operational side, Greggs joined forces with Boots, Marks & Spencer, and the Met Police to tackle shoplifting, a move that could help protect margins. So rather than a traditional bakery relying on yesterday’s wins, it looks like the business is embracing a new and evolving future.
But what does all this mean for investors?
Valuation, dividends, and the five-year picture
Despite the recent rally, Greggs’ shares are still down roughly 38% over five years. That leaves a lot of room for recovery if earnings continue to compound.
On valuation, the shares trade at a forward price-to-earnings (P/E) ratio of around 14, below its own historical average and that of rivals. That’s attractive for value investors, and it’s backed by analyst’s earnings assumptions. Using a discounted cash flow (DCF) model, some estimate the shares could be undervalued by as much as 51% — so expectations are high.
For income investors, the dividend remains the core appeal. With a reiterated 19p per share interim dividend, its full-year payout for 2026 will likely remain at 69p per share. That implies a trailing yield of roughly 3.7%, with a payout ratio around 53%, there’s enough scale for modest increases if cash flow holds up.
- Forward P/E: 14.2.
- Dividend yield (trailing): 3.7%.
- Payout ratio: 53%.
- Five-year price change: down 38%.
But all that still relies on UK consumer confidence. If cost inflation eats away at profits, or sales decline, Greggs may struggle to repeat these numbers. That puts future dividends at risk.
Why Greggs deserves a closer look
In my opinion, when I see a quality stock trading well below its long-term high, it’s worth taking a closer look to find out why.
Taking into account the valuation and dividends, I think Greggs looks attractive right now and deserves consideration by both value and income investors. The combination of a reasonable multiple, a solid yield, and a well-planned roadmap makes it a sensible core holding for a diversified UK income portfolio.
As always, allocation matters. Best practice suggests sizing a position based on risk tolerance and diversification, then monitoring upcoming trading updates to adjust accordingly.
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Mark Hartley owns shares in Greggs.
