The Guzman y Gomez Ltd (ASX: GYG) share price has caught the attention of investors since its much-hyped public listing earlier this year.
Shares in the Mexican fast-food chain have lifted almost 70% since its initial public listing (IPO) in June at $22, now swapping hands at $37.37 apiece on Friday.
After this impressive run, analysts have chimed in – and their opinions are mixed. Let's see what's in store for the GYG share price.
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Broker downgrades GYG shares
In its first ASX earnings results, Guzman y Gomez reported network sales growth of 26% for FY24, with comparable store sales up 8%.
As my colleague Mitch reported, these results were ahead of Domino's Pizza Enterprises Ltd (ASX: DMP) reported just 2.8% same-store sales growth, while Collins Food Ltd (ASX: CKF), which operates KFC and Taco Bell, posted 3.8%.
While the fast-food chain delivered stronger-than-expected FY24 results, UBS has flagged that its current valuation might be getting ahead of itself.
According to The Australian, UBS analyst Shaun Cousins has downgraded Guzman y Gomez to a sell rating despite raising the 12-month target price by 13% to $35.
Despite the upside risks to its FY25 earnings outlook, UBS remains cautious. The broker notes that the company's share price has surged beyond what earnings forecasts can justify, especially given the current economic climate.
Due to share price outperformance since its 20-Jun-24 IPO, the multiple has expanded off already above-Prospectus earnings estimates, making the current risk- reward unattractive, in our view.
While the company's strong brand presence and rapid expansion in the quick-service restaurant (QSR) market make it a favourite among investors, UBS believes the risks currently outweigh the rewards.
The bullish take on GYG
Not all brokers share the same bearish outlook. Morgan Stanley is bullish on the GYG share price, initiating coverage with a buy rating and a price target of $31.80 last month.
Morgan Stanley highlights Guzman y Gomez's unit economics, growth across multiple markets, and its ability to scale effectively in its thesis.
Fund managers are also piling into the company. Firetrail Investments, for example, is bullish on the fast-growing QSR, and emphasises the franchise's profitability.
According to Firetrail, Guzman y Gomez's drive-through stores generate around $6.1 million in average annual revenue, with a payback period of just 18 months. That rapid return on investment is surpassed only by McDonald's.
Of course, the case isn't without risks. Despite its rapid expansion, Guzman y Gomez reported a statutory loss of about $14 million in FY24 versus a $2 million loss in FY23.
This is something that could weigh in moving forward.
Foolish takeout
The GYG share price continues to attract plenty of investors. The stock is well in the green since its listing, but some brokers are cautious on valuations.
Others see a long-term period of growth. Time will tell what side of the coin is correct.
