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If you’re looking for evidence of shareholder confidence on Friday, look no further than the price action for Guzman y Gomez (ASX:GYG).
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This morning, we learned the company has ditched the US market where it has been trying to compete with the likes of Taco Bell and a slew of other Mexican fast food restaurant brands, as well as real Mexican food itself.
Perhaps coming as no surprise to anybody, that plan hasn’t quite worked out. It did sound like it had come as a surprise, or at least a worst case scenario, to GYG management’s Friday webinar-cum-analyst-call – “the US business [has been] underperforming our expectations,” GYG’s founding team said.
This finance journalist was curious to hear a tone of what sounded like genuine disappointment, as if that wasn’t the most likely outcome in a market already saturated by Mexican fast food brands.
When Guzman y Gomez IPO’d on the market in relatively recent history, its entire value proposition was built around building as many stores as there are McDonalds in Australia; but the US market penetration ambition was also a large part of justification for its market cap – over A$2.1B at the time of writing.
Many have had their questions about that plan to dominate the US Mexican fast food market, with analysts for just about every investment house back at square one, noting the brand would be facing fierce competition.
To date, the company has only ever opened stores in Chicago, so its US expansion plans were in the early stages. And now it’s decided to pull the plug on the US altogether, swapping its focus back to Australia.
Shareholders, apparently, haven’t been too fussed, and if anything think the withdrawal from the US is a good move. The GYG share price jumped nearly +15% in the second hour of trades to $20.75/sh, which brings its 1 week returns to over +25.
Compare that to a 1Y loss of -33.25%; Friday’s announcement more or less helps GYG effectively break even when it comes to YTD performance (-4% at the time of writing.) It was in August of last year we started to see pain truly manifest for the stock when underwhelming profits led to a -20% drop in the share price, prompting the co-CEOs to release a letter to the market.
That price action is counterintuitive to anybody who doesn’t realise that GYG was founded by ex-investment bankers. Make of that what you will, but relationship networks and the ability to secure a strangely loyal shareholder registry might be part of it.
The good news for GYG is that the share price is above all time lows it hit back in April. Whether share price gains can stay in place depends on whether the company can pull off what it’s effectively promised investors this morning: that Australian EBITDA guidance (not profits) will grow +30% in FY26 vs YoY. That they’ve used EBITDA may say a lot, but the market doesn’t appear to care.
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