FTSE bargain hunt: Tesco vs Greggs — which shares offer better value now?

Quick summary

Performance and recent results

Tesco: Over five years Tesco's shares are up 82%, but the last 12 months show only about 6% growth. Tesco's Q1 results (18 June) reported like-for-like sales up 1% to £16.8bn, with Booker wholesale sales down 3.2%. Management kept full-year underlying operating profit guidance of £3.0bn–£3.3bn and free cash flow guidance of £1.5bn–£2.0bn. Tesco is running a £750m share buyback.

Greggs: Over five years Greggs' shares are down around 40%, though they recovered roughly 10% in the past year. Greggs' H1 results (29 July) beat expectations: sales rose 7.2% to £1.1bn and operating profit jumped 22.9% to £86.5m. Its operating margin stood at 7.9%, versus Tesco's 4.3%.

Valuation and income

Greggs trades on a price-to-earnings (P/E) ratio of about 14.4 and yields roughly 3.94%. Tesco trades on a P/E of about 15.8 with a yield near 3.03%. Consensus broker one-year target prices in the article place Greggs roughly 3.75% above its current level (target ~1,819p vs 1,754p) and Tesco about 11% above its current level (target ~516p vs 465p). Brokers and the author express modest optimism for Tesco compared with Greggs.

Growth outlook and risks

• Recent expansion: 34 net new shops in H1, totaling 2,773 shops. Management sees scope for at least 3,500 UK shops.
• Margin profile: higher operating margin per pound of sales, which boosts profitability when sales grow.

• Scale and breadth: market leadership and a wider product and service offer, including wholesale through Booker and grocery partnerships.
• Growth constraints: fewer obvious high-growth levers than Greggs, but safer position with value-focused shoppers.
• Operational risk: Booker underperformance weighed on recent like-for-like sales.

Investment takeaways

• If you prefer steadiness, scale and a higher probability of modest upside, Tesco aligns with that preference. It shows consistent cash flow guidance and a material buyback programme.
• If you favour margin expansion, faster near-term profit growth and a clearer organic growth runway via new shops and partnerships, Greggs offers that profile but with more share-price volatility.

Bottom line

Tesco and Greggs serve different investor priorities. Tesco prioritises scale, defensive market share and steadier returns. Greggs delivers higher margins and clearer growth potential through store expansion but carries more execution and sentiment risk. Both could become more attractive if valuations fall or the economic backdrop shifts further in ways that affect consumer spending patterns.