The Greggs (LSE:GRG) share price has disappointed many retail investors over the past two years. In the years up to September 2024, the stock was a fairly consistent gainer, and I’d guess that retail investors were drawn to a company they knew and its momentum.

What surprised me then, and it still does now, is that institutional analysts were also very bullish. Spoiler alert, they were wrong to be.

Thankfully, there are plenty of lessons we can learn from this story. Let’s take a closer look.

Institutional analysts can be very wrong

You’ll often see a headline like “JPMorgan raises its price target on Greggs.” Honestly, I’m not sure if Greggs is in JPMorgan’s coverage… but you get the drift. Big investment banks have analysts producing research on listed companies.

This research can often be market moving. In other words, if a bank has good things to say about a company, then the share price will typically rise within a couple of hours of that research being published.

However, institutional analysts can be very wrong. It’s important to remember that this isn’t the bank as a whole deciding to upgrade or downgrade a price target. It might just be one analyst and their manager.

And that can lead to some fairly anomalous positions. For example, Jay Goldberg, a senior analyst at Seaport Global Securities, has been incredibly bearish on Nvidia. He stands out among 80+ analysts covering the stock as typically being the only one to hold a negative position.

Anyway… how does this link to Greggs? Well, what always surprised me is that 12-15 analysts covering Greggs were collectively bullish on the stock even when the valuation was ridiculous for a sausage roll maker.

In September 2024, when the stock was peaking, analysts collectively held a Buy rating and the share price target was £33. At the time, the stock was near the share price target, but today it’s closer to £15.30. And slowly, but surely, analysts have reduced the target, with the average now sitting at £17.06.

How did they got it so wrong collectively? It’s hard to say. But we can deduce that share price targets are only a guide.

Approaching fair value

When Greggs was trading near £33 per share, at 24 times forward earnings with growing debt, and limited like-for-like sales growth, I thought the valuation was ridiculous.

And now we’re closer to £15, I think the valuation is clearly more reflective of the state of the business. The operational context hasn’t changed massively, but I just don’t think there’s much to get excited about.

It now trades around 12 times forward earnings, which looks pretty fair for a business likely to deliver less than 5% earnings growth over the coming year. The dividend yield sits around 4.5%, though cover is thin. Net debt has grown substantially too.

Personally, I still think there are better options out there. However, I accept the valuation is a lot fairer today. Some may find it worth considering.