Guzman Y Gomez Ltd (ASX: GYG) shares have fallen heavily from their highs this year.
While this is disappointing for shareholders, it could be a buying opportunity for the rest of us.
That's the view of analysts at Macquarie Group Ltd (ASX: MQG), which have just initiated coverage on the quick service restaurant operator.
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What is the broker saying?
As mentioned above, the broker feels that recent share price weakness has created a buying opportunity for investors. It said:
GYG had a strong start after listing in Jun-24, with the stock re-rating from an IPO price of $22 to reach ~$45. However, as comp sales growth moderated and US losses deepened, the stock sold off. We now see market expectations as having overly re-based, with the current share price an attractive entry point to take advantage of a compelling growth story.
Macquarie also highlights that the company is executing well on high-growth dayparts in a challenging market. It adds:
GYG has benefited from a trend toward "fresh" in QSR, with proprietary data from Fonto showing ongoing market-share gains against a challenging backdrop for the QSR channel. We expect comp sales growth to re-accelerate as GYG executes on high-growth dayparts where comps are running at ~20-30% (breakfast and late night comprise ~20% of sales). Additionally, we expect improvement in the QSR channel as cost-of-living pressures abate. GYG will see an outsized benefit from this, with leverage in owned restaurants alongside a scaled royalty fee structure driving significant growth off a low base.
Guzman Y Gomez shares tipped to rise
According to the note, the broker has initiated coverage on Guzman Y Gomez shares with a price target of $31.10.
Based on its current share price of $26.15, this implies potential upside of 19% for investors over the next 12 months.
Overall, the broker believes the company has a significant growth opportunity. And while the US market could be difficult, it notes that it has the option to withdraw. Commenting on its buy recommendation, it said:
Initiate with Outperform. We see compelling growth driven by AU segment, with FY30E P/E at ~21x while still delivering ~30% EPSg; there is further upside on reaching 5-year uEBITDA/network sales target (MRE at 9.2% vs. ~10%). US is unproven, but limited downside with worst-case scenario an exit.
Valuation: We initiate coverage with a DCF-derived $31.10 target price. Our inputs, other valuation methodologies and sensitivities are discussed within.
