Guzman Y Gomez (ASX: GYG) shares are back in the green today.
Shares in the Mexican fast food restaurant chain closed yesterday trading for $27.64. In early afternoon trade on Wednesday, shares are changing hands for $28.42 apiece, up 2.8%.
For some context, the All Ordinaries Index (ASX: XAO) is up 0.1% at this same time.
As you're likely aware, Guzman y Gomez is a newcomer to the ASX. The stock first began trading on 20 June.
Investors who were able to take part in the initial public offering (IPO) could have bought in for $22.00 a share. Some fortunate franchisees got an even better deal, buying in at just $18.00 a share.
As for the rest of the ASX investor pack, Guzman y Gomez shares opened on 20 June trading at $30.00 per share.
That means investors buying early on day one will be sitting on losses of around 5%.
It also means today's prices could present an excellent long-term entry point, according to Firetrail Investments.
Why Guzman y Gomez shares are a 'buy' today
Speaking at the Pinnacle Investment Management Group Ltd (ASX: PNI) 2024 Investment Summit, Firetrail managing director Patrick Hodgens said, "GYG has been the best performing IPO in the last three or four years. And for whatever reason, it's a company that the media seems to love to hate."
He noted that Guzman y Gomez is Australia's fastest growing quick service restaurant franchise today.
And Hodgens listed three key reasons why Firetrail is "very excited" about Guzman y Gomez shares going forward.
"Firstly, it's their franchisee profitability," he said.
According to Hodgens:
GYG is second only to McDonald's in terms of their typical revenue per store. Their typical drive-through stores have around $6.1 million of revenue per annum. Their strip malls are a touch less.
The key point here though is every new GYG store open today has a payback period of 18 months or less. Every other brand, excluding McDonald's, is usually three or four years before they get a positive payback.
Hodgens noted that "every single franchised, GYG store that has been trading for more than four months is profitable today" with a median return on investment of over 50%.
This, he said, should be "keeping the franchisees happy".
The second reason Firetrail is bullish on Guzman y Gomez shares is the company's store growth opportunity in Australia.
"Their growth runway in the Australian market is absolutely incredible," Hodgens said.
He added:
They currently have 185 stores in the Australian markets versus a McDonald's of over 1,000. They have 30 full-time property executives scouring the Australian looking for the incredible best sites.
Their aim is to launch around 30 new sites per annum, we think in a couple of years that'll probably get to 40 and even beyond that.
Which brings us to the third reason to buy Guzman y Gomez shares today, the company is expanding its addressable market.
"They're no longer just focusing on the 18 to 30-year-old age groups as all other quick service restaurant focus on," Hodgens said.
He continued:
Their catch cry is, 'Clean is the new healthy.' They have one of the only quick service restaurant meals in the Australian market that has zero unacceptable preservatives and additives versus a McDonald's typical meal of around 48. This has all been independently audited by health desk experts over years.
This is truly resonating, not just with the 18 to 30-year-olds, but it's now effecting the 5-year-olds to 85-year-olds.
And if you want any more reasons why Guzman y Gomez shares could outperform, Hodgens added, "They have an incredibly strong management team and one of the best boards for a mid to small cap company. And they have no debt."
