Over the last few decades Greggs (LSE: GRG) has delivered tasty returns for shareholders. Recently, however, Greggs shares have lost their appeal.

Take the last 12 months as an example. During this period, the Greggs share price fell by 23%. So an investor who invested £15,000 at the time would now have a block of shares valued at around £11,550.

Dividends should also be taken into account. The current yield is 4.2%. A £15,000 investment in Greggs shares six months ago should now be paying dividends of close to £500 a year. Still, even allowing for this, a £15,000 investment would now show an overall loss on paper.

What went wrong?

Disappointing stuff. After all, no investor puts money into stocks hoping they will lose value. So what went wrong for Greggs?

Probably not that much. Currently, however, he falls into what I would describe as an expectation trap. When I say that not much bad has happened, I am not discussing recent challenges.

Last summer there was a warning about shocking profits. This reflects a number of ongoing risks for the company, from impoverished product demand planning and inventory storage due to seasonally changing weather, to the impact of higher social security and wage costs.

However, Greggs continues to grow revenues on a similar basis. This growth seems even stronger if we add the effect of opening novel stores.

The company remains profitable, has a steadfast customer base and benefits from a competitive cost structure due to its size and some centralized manufacturing.

The problem is that – and this is what I call the expectations trap – Greggs has been seen as a balmy growth company for several years. Now the company has grown significantly and organic growth has slowed, investors are reducing the growth premium they think the stock deserves.

Although Greggs is still a forceful, profitable growth company, its shares have fallen because the company’s projected growth rates are no longer what they once were.

Is there a chance here?

I am not surprised by such decreasing growth dynamics. No organization can sustain high growth rates indefinitely – all organizations reach a point of diminishing returns from business expansion.

With several thousand stores across the UK, Greggs is closer than ever to saturation point. Opening a novel store involves the risk of taking over an existing business, not a competitive one.

But is this bad business? Not at all. I think it’s great business. The company took on a range of commodity products and introduced changes such as unique names and flavors to support differentiate its offerings in the market, giving it pricing power even on basic products like the humble sausage roll.

The company has a compelling value proposition for cost-conscious customers while remaining profitable and cash generating. Customers come regularly and I hope it stays that way. People have to eat whatever the economy makes. In fact, Greggs’ focus on costs means that a faint economy may actually be more helpful than harmful to customer demand.

I believe there is currently a fundamental discrepancy between what Greggs shares should be worth and what the stock market claims. Over the last few months I have added more to my portfolio.