Guzman y Gomez Ltd (ASX: GYG) shares ended the week 5.96% higher at the close of the ASX on Friday afternoon, at $22.06 a piece.
The jump has helped to recover some of the fast food retailers' recent share price losses, albeit there is a long way to go before the stock returns to peak levels. Over the past 6 months, GYG shares have tumbled 24.5%. They're now trading 46% below the share price this time last year.
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What's happened to Guzman y Gomez shares?
There was no price-sensitive news out of the company last week. Friday's uptick could imply that investor sentiment about the stock is shifting, although it could be investors shorting the stock in anticipation of more declines.
Investors have gradually lost confidence in Guzman y Gomez shares this year following its two disappointing earnings updates.
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 was also recently listed as one of the most shorted stocks on the ASX, approximately 13.2%, 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. This is another week-on-week increase. Valuation concerns are likely to be behind this. Especially given the disappointing performance of its US business, which was seen as a key driver of long term growth. It is now the third most shorted stock in the market.
Is there any chance of an upside ahead?
Analyst sentiment about Guzman y Gomez shares appears to be shifting to be more positive. TradingView data shows that out of 10 analysts, 4 have a buy or strong buy rating on the stock and 4 have a hold rating. The remaining 2 have a sell or strong sell rating.
Interestingly, analysts think the share price has the potential to storm higher over the next 12 months. The average target price is $27.95, which implies a potential 26.7% upside ahead, at the time of writing. However, some expect the share price could climb as high as $36, which would translate to an impressive 63.19% increase from the current trading price.
Earlier this month, the team at Morgans reiterated a buy rating and $32.30 price target, believing the fast casual Mexican chain can bounce back. The broker said that GYG launched a new limited-time offer (LTO): the BBQ Chicken Double Crunch (BBQ CDC). Early feedback suggests the item is one of Guzman y Gomez' more indulgent menu items and taste tests have been overwhelmingly positive.
Analysts at Macquarie initiated coverage on the stock in October with a price target of $31.10. 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.
It looks like the latest share price spike could be the sign of things to come. Therefore, today could be a great opportunity to buy shares on sale before it takes off.
