After jumping 50% in the last six months, Greggs (LSE: GRG) shares look like they’re back in investors’ good books. By comparison, the FTSE 250 index is up ‘only’ 9%.
I can think of a few reasons why this positive momentum might stick around for the remainder of 2026 and possibly into 2027.
What’s behind this strong recovery?
The initial catalyst for the recovery in the share price came back in July. In addition to reporting a 20% increase in first-half profit, the market also cheered news that Greggs had seen stellar sales growth of its food products in supermarkets.
The company then added to this optimism in September with an encouraging update. Total sales rose 7.7% in Q3, with like-for-like sales up 3.4%.
This improved performance led management to say that it expected “a modestly improved outcome for 2026“. That might not sound all that great, but bear in mind that investors had become accustomed to being disappointed.
More to come?
One reason for thinking that Greggs could continue rising is that we’re now in arguably the most important trading period of the year for the company.
As shoppers start thinking about Christmas, high streets will be busier than usual. That extra footfall, coupled with colder weather, could set the tills ringing more frequently. Sensing this, some traders may buy the stock in advance of its next update on trading (due 14 January).
Previous investment is about to pay off too. Two new distribution centres — in Derby and Kettering — will be opening soon. Clearly, this will help the company from an operational perspective. But it also means that capital expenditure should fall after 2027.
On top of this, the shares still look reasonably valued for what remains a very high-quality company and much-loved brand. A price-to-earnings (P/E) ratio of 18 for 2026 is still way below where it stood when Greggs came close to setting a new all-time high back in 2024 (high 20s) and I sold my stake. It’s also lower than the five-year average P/E of 23.
Why might the shares lose momentum?
Sure, all these attractions do not automatically translate to more share price gains.
While a trip to Greggs is unlikely to break the bank, the cost-of-living crisis could still impact demand going forward. Resurgent inflation also means costs are likely to increase for the food-on-the-go retailer and could come in higher than anticipated.
Looking to the future, there are also concerns that the growing popularity of weight-loss drugs will temper demand.
My verdict
I was initially cautious about whether Greggs would continue to charge upwards a few months back. In the middle of a boiling hot summer, I wondered just how many of us would fancy a steaming hot pasty. But it seems that the company’s evolving menu did enough to keep people coming through the doors.
Whether this stock will actually break the £25 barrier within a couple of months is, naturally, impossible to say. No one knows for sure where share prices are going in the near term.
Even so, I’m optimistic. For long-term investors, I think Greggs is one of a few growth stocks definitely worth considering.
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Paul Summers has no position in any of the shares mentioned.
This story originally appeared on Motley Fool
