Guzman Y Gomez Ltd (ASX: GYG) shares were the latest investment I made in my portfolio because of their growth potential and the better valuation they offered.
This company operates as a Mexican food business in Australia, Japan, Singapore, and the US. It has a mix of company-operated and franchised restaurants in Australia, which is its key market. At the end of the third quarter of FY25, it had 73 corporate Australian GYG restaurant locations and 138 franchised restaurants.
There are not many ASX shares that are growing strongly in both Australia and overseas, which is one of the key reasons why I decided to invest in the company. I'll highlight the main reasons that attracted me to make another purchase.
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Lower Guzman Y Gomez share price
As the chart below shows, GYG shares have almost returned to the lowest level since they were listed in June last year.
I like investing in growing businesses. I particularly enjoy buying them when their share price has declined because it's clear you're buying them at a better price-to-sales ratio, price-to-operating profit (EBITDA) ratio, and price-to-earnings (P/E) ratio.
The Guzman Y Gomez share price declined approximately 40% between the peak in February 2025 and the 52-week low in July 2025. I think that level of decline was compelling.
There's no guarantee of how much GYG's sales will grow in the short term or the long term, but I'm optimistic its appealing food, fair prices, and fast service will continue to resonate in the markets where it operates.
Excellent sales growth
The business is growing at a rapid pace, which I believe will give it great advantages to deliver for shareholders.
The latest year-over-year growth statistics for the FY25 third quarter were excellent. Australian network sales rose 23% to $267.6 million, Singapore sales grew 33.9% to $16.6 million, Japan sales went up 23.5% to $2.1 million, and US sales jumped 23% to $3.2 million. There was strong sales growth across the board.
I believe compounding will help the business become much larger over the next five to ten years and support a higher Guzman Y Gomez share price.
But these strong numbers are not just being driven by opening new locations, though the total restaurant number increasing by 14.75% year over year to 241 was an impressive rise.
Comparable sales growth for Australia, Japan, and Singapore was 11.1%, which is a very strong growth rate from the existing restaurants. Sales at all times of the day are increasing at a pleasing pace, but GYG reported an acceleration of sales growth in breakfast and after 9 pm trading.
GYG is aiming for 1,000 Australian locations over the ultra-long term, while there is significant overseas growth potential in Japan and numerous other countries (such as the UK and Canada).
Scale advantages
GYG looks like the type of business that could benefit significantly as it becomes larger, with rising profit margins.
The Mexican food business says it's expecting long-term restaurant margin expansion enabled through operational excellence.
It's also investing for growth and operational improvements, ensuring it's capable of delivering the quality and speed for customers, while also unlocking potential margin benefits for the company.
In the longer term, GYG expects the corporate restaurant margin to continue expanding, the franchise royalty rate to rise above 10% (up from a guided 8.3% for FY25), and the general and administration costs to network sales ratio to reduce.
So, rapidly rising sales combined with a rising profit margin could be a winning formula. Broker UBS predicts the operating profit (EBIT) margin could climb from 4.5% in FY25 to 13.3% by FY29.
I think GYG's bottom line will rapidly improve from here, making the Guzman Y Gomez share price a compelling investment.
