GYG shares drop after 'sell' rating from Goldman Sachs
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The news: Mexican food chain Guzman y Gomez has lowered in early trading after Goldman Sachs initiated coverage on the company with a ‘sell’ rating.
The numbers: GYG shares were down 3.28% to $38.07 in early trading, and has soared 31.28% since it floated in June.
Goldman Sachs analysts has a $33.20 price target on the stock.
The context: The analyst said that despite their sell rating they considered GYG to be a high quality quick service restaurant (QSR) operator with the ability to grow operations through multiple channels and was highly likely to exceed FY25 prospectus forecasts.
However, they said GYG had an “overly ambitious” long-term store expansion profile despite no recent successful precedent in Australia.
They also believed the company had an inappropriate “stretch valuation” that had been pegged to the highest growth US-peers.
The analysts are cautiously optimistic on the QSR outlook in general as consumer sentiment is positive with given interest rate expectations and recent tax cuts, along with a growing population and a forecast to growth in real disposable income and consumption.
What they said: “We note an overhang exists with circa 13% of total shares expected to be release from escrow in March 2025 and the remaining circa 40% in August 2025,” the analysts said.
The source: Goldman Sachs research
