The Guzman Y Gomez Ltd (ASX: GYG) share price is being put in the spotlight after one of its major investors decided to make a major sale.
The Mexican food business joined the ASX boards three months ago with a lot of attention on its valuation.
Since the initial public offering (IPO), the GYG share price has soared even higher. The IPO price was $22 and it has since climbed 80%. Incredibly, the company is up by 33% from the opening day price of $30.
After such a strong run, one shareholder has decided that it has risen far enough to take profit off the table.
Major sale
It was reported by the Australian Financial Review that fund manager QVG told investors this month it had sold its stake in GYG shares.
QVG portfolio manager Chris Prunty, one of the backers of Guzman y Gomez during its IPO, said he had seen a lot of "price-insensitive buying" following the fast food company's entry into the S&P/ASX 200 Index (ASX: XJO).
Prunty said:
We love the growth outlook for the business and the return on capital generated by that concept – and the food itself – but we couldn't help but to realise some profits.
The AFR also reported that QVG portfolio manager Josh Clark said that QVG would like to own GYG shares in the future but that the investment team would "like to do it at a better valuation than where it is currently".
The newspaper also noted that other institutional investors, such as Aware Super and Cooper, have sold some shares, though they remain invested.
Some brokers are not in love with the valuation either. Morgans analyst Billy Bourton reportedly said:
Despite clear catalysts for GYG to continue to perform well during FY25, at the current valuation we struggle to recommend new investors enter the stock.
Is the Guzman y Gomez share price valuation too expensive?
It certainly doesn't seem cheap, and investors seem to be pricing in a lot of future success with its current valuation.
The FY25 outlook is expected to show further growth. When the company released its guidance-beating FY24 result, it made several comments.
It said in the first seven weeks of FY25, Australian segment comparable sales growth was above expectations at 7.4%.
It's expecting to open 31 new restaurants in FY25, with the corporate restaurant margin forecast to rise from 17.4% to 17.8%. It also said the franchise royalty rate is guided to rise to 8.3% in FY25, up from 7.8% in FY24.
The business expects strong revenue growth and profit growth in FY25 and beyond. How much growth it achieves will ultimately decide whether today's valuation is justified or not.
I still own my Guzman y Gomez shares and have seen significant capital growth since early July. However, I'm not looking to buy more shares at this price.
