It's been just under four months since Guzman Y Gomez (ASX: GYG) shares began trading on the ASX.
Investors who bought shares in the Mexican fast-food restaurant chain at the initial public offering (IPO) or in the first six weeks after the company listed on 20 June will have done quite well.
And according to Seneca Financial Solutions' Arthur Garipoli (courtesy of The Bull), now could be a good time to take profits on the stock.
Image source: Getty Images
Time to sell your Guzman y Gomez shares?
Garipoli has a sell rating on Guzman y Gomez shares.
"GYG is a Mexican themed restaurant chain," he explained. "Shares were issued in the initial public offering at $22 and the company listed on the ASX on June 20, 2024."
As I said up top, investors who managed to get in on the IPO will have done quite well.
At market close on Wednesday, shares were trading for $36.97. Meaning those IPO investors still holding the stock will currently be sitting on gains of 68%.
And for those early investors who've already taken profits, some will have really shot the lights out.
"The stock was recently included in the S&P/ASX 200 index, which pushed the shares to a closing price of $42 on September 11, 2024," Garipoli pointed out.
That saw the share price up 91% from the IPO offering. In less than three months.
Noting that Guzman y Gomez shares were trading at $38.70 on 10 October, Garipoli said:
The stock price has exceeded the forecasts of most analysts. GYG expects to open another 31 restaurants in fiscal year 2025. With an ambitious store expansion profile, we believe the valuation is stretched.
It may be prudent to take a profit at current levels.
What's the latest from the ASX 200 fast food retailer?
The Mexican fast food company released its first quarter update last Thursday, 10 October.
Guzman y Gomez shares closed up 0.2% on the day but finished in the red for the following three trading days.
On the positive front, the company reported network sales of $278.8 million, up 20.7% from the prior corresponding quarter.
However, this was less than what was indicated by the company's prospectus forecast.
While its Australian business saw a 21.1% increase in network sales to $260.2 million, the company's nascent US business reported network sales of $2.6 million, down 3.7% year on year.
As Motley Fool analyst James Mickleboro pointed out on the day, "This is disappointing, given how the market sees its US expansion as one way to justify its lofty valuation."
Management said the year on year pullback in its US sales were due to "the prior corresponding period benefiting from initial higher sales associated with new restaurant openings".
Highlighting Garipoli's recommendation to take profit on Guzman y Gomez shares, management reiterated the company's intent to open 31 new restaurants in Australia in FY 2025.
