After seeing the recent FY24 result, I'm more confident about the future of Guzman Y Gomez Ltd (ASX: GYG) shares than before.
The Mexican fast-food company was subject to much investor debate before its initial public offering (IPO). Yet, the FY24 result impressed the market, and the GYG share price has lifted 23% in the last month.
I liked a few elements of that result in particular, making me wish I had bought more Guzman Y Gomez shares at the start of July.
Stronger revenue than expected
In my view, one of the most promising aspects of the FY24 report was that network sales were stronger than the company expected.
FY24 network sales grew 26.4% to $959.7 million, partly due to strong comparable sales growth of 8.1% in the Australian segment.
Not only was the network sales growth strong compared to last year, but it was 0.6% better than the prospectus forecast.
It's a very promising attribute if a company can outperform expectations. Perhaps Guzman Y Gomez was too conservative with its estimates, which would be a good sign too, if that was the case.
Better profit than forecast
When revenue is better than expected, it can lead to stronger profitability than expected.
Guzman Y Gomez reported that its underlying profit before tax (PBT) in FY24 grew by 113.7% to $16.3 million. This was 12.7% better than expected. The underlying net profit after tax (NPAT) of $5.7 million was 71.2% better than forecast in FY24, while statutory NPAT was 15.1% better than forecast.
Investors usually judge a business by its profit, so significantly better profit performance is a good sign of the company's operating leverage.
As revenue rises, I expect profit can soar and help Guzman Y Gomez shares climb further over time.
Stronger profit can be used to help fund more global growth and also pay dividends in the future.
Excellent FY25 update
Guzman Y Gomez expected to see good growth in FY25, and the company's trading update underlined to me the impressive nature of the business, with strong organic growth potential.
In the first seven weeks of FY25, Australian segment comparable sales growth was "above expectations" at 7.4%. This was partly helped by delivery outperformance.
There's no guarantee that a business will continue delivering strong comparable sales growth. So, I think the reported growth is a pleasing sign that GYG's success can continue as more customers learn of the offering and visit restaurants more regularly.
If the company can succeed internationally in a place like Japan, then I'd say its future is very promising.
The Guzman Y Gomez share price is certainly not cheap, but neither are many appealing businesses locally or globally. I'd be willing to make a small investment today.
