Guzman Y Gomez Ltd (ASX: GYG) shares have fared reasonably well amid the market volatility of late.
Shares in the Mexican fast-food restaurant have danced in a range of $27 – $30 apiece in August, and are trading flat over the past week, swapping hands at $29.11 as I write.
Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down more than 5% over this time.
Top broker Morgan Stanley has weighed in on the investment debate, initiating coverage with a buy rating on Guzman.
Let's dive in.
Morgan Stanley's take on Guzman y Gomez shares
Morgan Stanley is bullish on Guzman after lifting all the stones into its investment prospects.
Analyst Melinda Baxter highlights it is a "leading Mexican-inspired quick-service restaurant operator", according to The Australian.
GYG is a leading Mexican-inspired quick-service restaurant operator, which, in our view, possesses the characteristics required to drive long-term brand and network growth – a unique offering that resonates with consumers, strong unit economics, proven success across a diverse footprint, and the ability to scale.
It's important to note that Morgan Stanley, along with Barrenjoey, were the joint lead managers in Guzman's initial public offering (IPO).
Morgan Stanley rates Guzman a buy with a price target of $31.80 apiece, indicating a 9.2% upside potential from the time of writing.
Fund managers are also taking bites of the quick service restaurant (QSR).
Firetrail Investments is bullish on Guzman y Gomez shares. It was one of the fund's best positions in June.
The fund's managing director, Patrick Hodgens spoke on the stock at the Pinnacle Investment Management Group Ltd (ASX: PNI) 2024 Investment Summit.
According to my colleague Bernd, Hodgens pointed out that Guzman is Australia's fastest-growing QSR franchise.
Hodgens emphasised GYG's franchisee profitability, noting that its "typical drive-through stores have around $6.1 million revenue per annum" and that every new store opened "has a payback period of 18 months or less".
He says this rapid return on investment is second only to McDonald's.
It's not all bullish, though. Despite the positive outlook, in July, Bell Potter thought Guzman y Gomez shares might be overvalued, recommending that investors consider trimming positions to lock in profits.
What to expect for Guzman's FY24 numbers
Guzman is set to release its first results as an ASX-listed company on August 27, and investors are eager to see if the company can meet its ambitious forecasts.
Its prospectus outlines a revenue target of $339.7 million for FY24, with pre-tax earnings expected to reach $43 million. The primary growth drivers include new restaurant openings and strong comparable sales growth.
All franchisees reported profits in the first half of FY24, with a median return on investment of 51%, Firetrail says.
The bar has been set high for Guzman y Gomez shares leading into its full-year earnings.
Foolish takeaway
Guzman y Gomez shares were the hottest listing of 2024. Sentiment was initially high. But sentiment alone can't drive a company's stock price higher forever.
Morgan Stanley is bullish, but time will tell if it is right. As always, remember to conduct your own due diligence. Broker opinions alone are no reason to buy a business's stock.
