It’s been a rough time to be a Greggs‘ (LSE:GRG) shares owner, with the stock now trading at its lowest level in over five years.

Since August 2024, Britain’s favourite bakery chain has seen its market cap collapse by almost 50% on the back of shrinking growth and rising costs. And the company is now one of the most heavily shorted shares on the London Stock Exchange.

Yet, could that soon be about to change?

An incoming recovery?

Last week, Greggs published its preliminary results for 2025, which received a lukewarm reception from investors, with its shares climbing almost 3% on the news.

While earnings took a tumble on the back of margin pressure, sales growth started to tick back up in the second half of 2025. And this momentum has spilt over into 2026, with management reporting a much stronger start to the year compared to 12 months ago.

At the same time, the group’s capital expenditures are on track to drop from £287m to £200m this year, before falling further to £150m-£170m in 2027. That means management’s set to enjoy an extra £87m of free cash flow this year all the while continuing with its store expansion ambitions of reaching 3,000 UK locations.

What about profit margins? In 2025, the operating profitability shrank from 9.7% to 8.7%, mostly due to a combination of higher ingredients, staff, tax, and energy costs. In 2026, those pressures continue, yet management’s taking steps to offset the impact through both price hikes and internal efficiency efforts.

The combination of steadily improving sales, falling capex, and expected margin stabilisation all suggests that Greggs could be close to the bottom of its current cycle. And it’s a conclusion that the analysts at JP Morgan, Barclays, and UBS have also seemingly reached.

All three teams of experts have just reiterated their Buy recommendations with 12-month share price targets ranging 1,910p-2,200p – a potential recovery gain of up to 35%!

What are the bears saying?

If Greggs does indeed continue to deliver superior results in 2026, an unwinding of current short positions could trigger an impressive double-digit rally in the share price.

However, returning profits to growth, even with higher sales, isn’t going to be an easy feat in the current climate. And even management’s warned that any improvement in earnings will be “contingent on a recovery in the consumer backdrop”.

This is also having an impact on sales. Revenue growth’s primarily being driven by new locations, with existing stores only generating modest like-for-like growth – a slowdown which hasn’t shown any significant signs of recovery yet.

So what should investors make of all this?

The bottom line

From a valuation perspective, Greggs’ shares are pretty cheap right now, trading at a significant discount against both historical and wider market levels. Whether that presents a buying opportunity ultimately depends on whether the company’s able to continue steadily ramping up sales and restore profit margins.

There are some encouraging early signs that this recovery is already under way. But all things considered, I think investors should wait to see more progress before thinking about buying any Greggs’ shares today, especially since there are other UK stocks that look far more promising right now.