At the close of the ASX on Tuesday, Guzman y Gomez Ltd (ASX: GYG) shares climbed 1.42% to $25.75.
The company joined the ASX in June 2024 after completing an initial public offering (IPO), making the largest listing in Australia in three years. It quickly soared over 50% to an all-time high in mid-February. But the share price then plummeted, and is now down 43.6% at the time of writing.
For the year to date, the Mexican-themed casual fast food restaurant chain's shares are 35.46% lower.
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What happened to Guzman y Gomez shares?
The shares have been under heavy pressure this year following two disappointing earnings updates.
In June, the restaurant operator posted a 23% year-over-year increase in global reported sales. It also recorded a 45.5% increase in EBITDA, and a 151.8% surge in net profits after tax (NPAT).
This meant Guzman y Gomez was able to announce a maiden dividend, with investors set to receive a fully franked payout worth 12.6 cents per share.
The Australia Segment, including Singapore and Japan, achieved 9.6% comparable sales growth, $1,168 million in network sales, and $66 million in segment underlying EBITDA. The news dented investor confidence.
In August, Guzman y Gomez reported sales in the seven weeks since 30 June had risen just 3.7%. This was sharply lower than the 7.6% H1 growth expected by the market.
Guzman y Gomez has also been listed as one of the most shorted stocks on the ASX, with about 12.6% of shares loaned out to hedge funds betting the price will fall, according to data from the Australian Securities and Investments Commission. It is now the fourth most shorted stock in the market.
What's the stock's outlook from here?
The ASX 200 share has outlined plans to expand significantly in the next few years. And while the share price has taken a beating this year, analysts believe the low price presents a good investment opportunity.
Analysts at Macquarie recently initiated coverage on the stock with a $31.10 price target. At the time of writing that represents a potential 20.5% upside over the next 12 months.
It said it believes that recent share price weakness has created an attractive entry point for investors. This is especially given that fresh eating trends are supporting market share gains and its focus on high-growth dayparts is accelerating its comparable store sales growth.
Combined with bold expansion plans, Macquarie thinks the business can deliver strong earnings growth through to FY30.
Morgans also thinks Guzman y Gomez shares will improve as the financial year progresses. It has a buy rating on the shares and a $32.60 price target. At the time of writing that implies a potential 26.3% over the next 12 months.
