Guzman y Gómez’s first‑half FY25 numbers were everything a freshly listed fast‑food chain could hope for: revenue up 22 %, same‑store sales up 9.4 %, and net profit after tax almost doubling to A$7.3 million versus the prior year — comfortably ahead of its prospectus target.Reuters Yet in the week to 25 July the stock slipped another 1.1 % to A$27.35, extending a slow grind that has seen the post‑IPO darling fall 30 % from its February peak.
1. Expectations finally caught the burrito
GYG floated in June 2024 at A$22 and quickly traded above A$39, leaving little margin for error. By the time the strong 1H25 result dropped in February, the share price already implied a forward P/E above 90. When analysts at RBC launched coverage with an Underperform and A$32 target, they framed the rollout assumptions as “overly optimistic.” Investors have since been recalibrating to more normalised multiples despite earnings outperformance.
2. Rising costs and overseas growing pains
While Australian stores are humming, the U.S. pilot restaurants posted a 12.7 % sales decline and a sizable EBITDA loss. Management insists the format can be tweaked, but the market sees execution risk and heavier capital needs. At home, wage inflation and higher input costs threaten to nibble at margins just as the company accelerates new‑store openings (19 in 1H25 alone). Even small negative surprises on cost lines can hurt a richly valued consumer discretionary name.
3. Liquidity over fundamentals in the short run
GYG still trades barely a year after listing, with only about 15 % of shares in free float. Thin liquidity magnifies swings as early backers trim stakes or funds rotate out of high‑multiple growth stories amid the ASX’s defensive shift. The result: price action that looks detached from underlying earnings momentum.
Outlook: burritos vs. valuation gravity
With consensus forecasting FY25 NPAT comfortably above the A$6 million prospectus number, management clarity on U.S. strategy and capex could be the trigger for re‑rating. But until GYG’s P/E compresses to levels closer to the quick‑service peer set (30‑40×), the stock may keep digesting past gains even as quarterly sales and profit headlines stay tasty.
Bottom line for forum investors: GYG’s fundamentals remain strong, but the share price is no longer riding the IPO sugar‑rush; it’s wrestling with high expectations, rising costs, and the realities of offshore expansion. If you believe in the long‑term growth story, weakness driven by valuation angst- not earnings slippage - may present an entry point. Just be ready for more volatility while the multiple works its way back to earth.
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