Down 45%: Are Guzman Y Gomez shares a buy yet?

Guzman Y Gomez Ltd (ASX: GYG) shares are currently trading below the initial IPO price at $21.50, at the time of writing.

Guzman y Gomez shares have gone from market darling to disappointment in less than a year. After debuting with plenty of hype, the Australian born Mexican fast-food chain has shed roughly 45% of its value.

Now Guzman Y Gomez shares are hovering near year lows. As a result, investors are asking an uncomfortable question: is this finally a buying opportunity, or a value trap in the making?

Swift sell-off

The sell-off has been swift and persistent. After peaking shortly after listing, Guzman Y Gomez shares have steadily slid as enthusiasm cooled and the market took a harder look at growth assumptions, margins and execution.

Rising interest rates haven't helped either, with investors rotating away from premium-priced growth names.

That said, the underlying business hasn't collapsed. In its most recent full-year results, the more upmarket fast-food company delivered strong top-line growth, driven by new store openings and solid customer demand.

Network sales pushed higher, revenue climbed sharply and EBITDA growth remained robust, reflecting the scalability of the model when volumes are there. The brand continues to resonate with consumers seeking fresher, fast-casual options rather than traditional fast food.

Domestic and international expansion

Expansion remains central to the story. Domestically, Guzman Y Gomez continues to roll out new restaurants, particularly drive-thru formats that have proven popular and highly productive.

It already has more than 225 locations in Australia with plans to reach 1,000 stores in two decades. In a decade from now, the company should be well on its way to achieve that domestic target.

Internationally, the group is pressing ahead in the US and Asia-Pacific, opening new sites and refining its operating model. At the latest count, it had 22 restaurants in Singapore, 5 in Japan and 7 in the US.

Cracks starting to appear

Management is clearly playing the long game, aiming to turn Guzman y Gomez into a global brand rather than a purely Australian success story.

But this is where the cracks start to show. Same-store sales growth has slowed, particularly in the early part of the new financial year, raising concerns that growth may be normalising faster than expected.

The US business, while promising, is still loss-making and falling short of the pace many investors had baked into valuations. Margins also remain thinner than some listed peers, highlighting the operational discipline still required to justify premium multiples.

Buy, hold or sell?

Analysts are split. Some argue the sharp pullback has removed much of the excess from the valuation and see upside if execution improves and international stores mature.

Other brokers remain cautious, flagging ongoing risks around cost pressures, US expansion and the sustainability of growth rates.

TradingView data shows that market watchers predict an average 12-month target of $27.95, a potential gain of 30%. The most bullish analyst sees a maximum upside of 67%, while the most pessimistic one forecasts a potential loss of 2% for 2026.

The post Down 45%: Are Guzman Y Gomez shares a buy yet? appeared first on The Motley Fool Australia.

Motley Fool contributor Marc Van Dinther has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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