Guzman y Gomez (ASX:GYG) Down 50% From Highs: Buy the Dip or Avoid the Value Trap?

Guzman y Gomez: Time to Buy the Dip or Avoid?

Guzman y Gomez (ASX: GYG) has gone from market darling to investor headache in less than a year. Shares are now trading around A$21, down roughly 50 per cent from their February 2025 high of A$46 and hovering just below the June 2024 IPO price of A$22. For anyone who bought into the Mexican fast-food chain’s much-hyped stock market debut, this has been a painful ride.

The stock is hovering near 52-week lows, and short sellers have taken notice. What makes this situation tricky is the split among analysts: JPMorgan recently upgraded Guzman y Gomez to neutral after the selloff, while others still see 30 per cent upside from here. The big question is whether this pullback is a genuine buying opportunity or a warning sign of deeper problems.

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Why Guzman y Gomez Has Fallen From Grace

The sharp decline comes down to one main issue: the US expansion isn’t working. US same-store sales fell 12.7 per cent in the first half, suggesting the brand is struggling to compete in America’s crowded fast-food market. This matters because the US was supposed to be GYG’s ticket to massive growth. Without it firing, the premium valuation becomes very hard to justify.

First-half underlying EBITDA came in at A$31.6 million, missing analyst expectations of A$32.5 million. The miss wasn’t huge, but it added to concerns that rapid expansion may be hurting profits. JPMorgan had previously rated the stock underweight but upgraded it to neutral in November 2025 after the share price fell back to IPO levels. Their price target of A$23.40 suggests limited upside from current prices.

Here’s the real problem: despite falling 50 per cent, Guzman y Gomez still trades on a price-to-earnings ratio of approximately 150 times. That’s an eye-watering multiple for a business facing clear headwinds. The stock has de-rated significantly, but in our view, it hasn’t yet reached levels that properly compensate for the risks involved.

The Bull Case for Buying at These Levels

Not everyone is bearish. Several analysts maintain price targets between A$27 and A$36, implying 30 per cent or more upside. Their argument centres on the Australian business, which continues to perform well with over 225 stores and solid same-store sales growth of 9.4 per cent in the first half.

The franchise model also deserves credit. Unlike company-owned expansion, franchising requires less capital and shifts risk to franchisees. This capital-light approach means GYG can grow its store count without burning through cash. The company ended FY25 with A$282 million in cash and no debt, giving it plenty of runway.

Bulls are watching the upcoming earnings report on 19 February 2026. A stronger-than-expected result, particularly any signs of US stabilisation, could trigger a meaningful bounce. For patient investors, the argument is that today’s pessimism may be creating tomorrow’s opportunity.

The Investor’s Takeaway

We believe caution is warranted here. While the 50 per cent decline looks tempting on the surface, the risk-reward remains challenging at approximately 150 times earnings. The US business needs to show clear signs of recovery before the growth story becomes believable again, and that hasn’t happened yet.

For investors considering a position, the February earnings represent a sensible catalyst to watch. A positive surprise could signal the bottom, while another disappointment might push shares lower still. Conservative investors should probably stay on the sidelines until there’s clearer evidence that the US turnaround is gaining traction. The opportunity may come, but we don’t believe it’s here just yet.