Guzman y Gomez Ltd (ASX: GYG) shares hit an all-time low of $21.89 a piece at the close of the ASX on Friday afternoon. The share price fell 2.93% over the course of the day. This dragged the shares down 11.56% over the month and 45.14% lower than this time last year.
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Why are Guzman y Gomez shares still tumbling?
There was no price-sensitive news out of the company last week. The downward trend of Guzman y Gomez shares is likely due to a continued slump in investor sentiment. The company's two disappointing earnings updates this year significantly dented confidence.
In August, the restaurant operator reported its FY25 results. It revealed a 23% year-on-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).
But investor optimism was dented by news of the comparable sales growth numbers in Australia. The company's Australian business, which includes operations in Singapore and Japan, achieved 9.6% comparable sales growth, $1,168 million in network sales, and $66 million in segment underlying EBITDA.
The company also revealed that its sales had risen just 3.7% in the seven weeks since 30 June, which was sharply below the 7.6% growth expected by the market.
Earlier in the year, the Mexican fast-food service operator also posted disappointing H1 FY25 results. Whilst overall network sales rose 22.8% to $577.9 million, sales in the United States fell 12.7% to $4.9 million. Sales in the Australia segment rose 9.4% to $573 million.
Guzman y Gomez has also recently been listed as one of the most shorted stocks on the ASX, with approximately 11.8% of its shares loaned out to hedge funds that are betting on the price to fall, according to data from the Australian Securities and Investments Commission. It is now the sixth most shorted stock in the market.
Is there any chance of an upside ahead?
Analyst sentiment about Guzman y Gomez shares is relatively divided. TradingView data shows that out of 12 analysts, 6 have a buy or strong buy rating on the stock, 3 have a hold rating, and the remaining 3 have a sell or strong sell rating.
However, the average target price is $28.41 per share, implying a potential 29.8% upside for investors over the next 12 months, as of the time of writing.
Analysts at Macquarie recently initiated coverage on the stock with a slightly more bullish price target of $31.10. At the time of writing, that represents a potential 42.1% upside over the next 12 months. The broker said Guzman y Gomez's current share price weakness is an attractive entry point for investors. Combined with bold expansion plans, Macquarie thinks the business can deliver strong earnings growth through to FY30.
Morgans also has a buy rating on the shares and a $32.60 price target. At the time of writing, that implies a potential 48.9% over the next 12 months.
The ASX 200 share has outlined plans to expand significantly in the next few years. If this comes to fruition, the current rock-bottom share price presents a fantastic opportunity to get into the stock for cheap.
