Fast food, fat valuations: Why investors keep buying terrible tasting stocks

When Jun Bei Liu donned a Domino’s cap at Livewire Live last Tuesday and declared she’s buying, the crowd groaned and laughed in equal measure.

Once a market darling, no one can deny that Domino’s cheese had slid off into a hot mess by FY25 reporting season.

So Jun Bei Liu's bullish call got me thinking – why is terrible-tasting food so resilient on the index?

I went looking into the top three ASX-listed fast food names to answer this pickle. All views on taste are my own. 

1. Guzman y Gomez (ASX: GYG )

Let’s start with the one with the biggest market cap that’s about as Mexican as Steve Martin in The Three Amigos: GYG.

Earlier in the year, Morgan Stanley, in its 2025 outlook, identified that what was initially perceived as a cyclical change is actually emerging as a structural shift in how Australians consume food and alcohol, driven mainly by younger generations, particularly in their reduced drinking and increased pursuit of healthier options.

Specifically, companies like Guzman Y Gomez are seen as better positioned for continued success due to their healthier brand image.

Ben Rundle of Hayborough and Joe McCarthy of Elston recently called it a hold on Buy Hold Sell, labelling it as a good business in Australia with loads of scalable growth potential - but were (understandably!) less sure about the expansion initiative for the US (the home of Tex Mex…shaking my head!). Both agreed it was overvalued.

As one YouTube commenter put it under said episode: “Gomez food tastes like crap.” (It got five likes.)

It wasn’t that long ago that edible Mexican food in Australia was an oxymoron. GYG is a step up, but let’s not overdo the salsa. With its extreme valuation, it's not worth reheating your nachos.

2. Domino’s (ASX: DMP)

My colleague Kerry Sun summed it up best a few months ago: 

“a systematic erosion of shareholder value across all aspects of the business (and terrible pizzas).” 

Share price down 60% in the past 12 months. Margins collapsed from 8% to 5%, store closures in Japan, struggles in France, CEO exits, analyst downgrades...

Allow me to pause for a moment here - bad pizza failing in two of the world's best culinary countries? Groundbreaking.

Let’s just say that when reporting season came around, it looked about as appetising as the morning after a share house party. 

But Jun Bei Liu sees a margin recovery story that hasn’t even begun, with the worst-case already priced in, Jack Cowan back as chairman and a new strategy to get back on track.

The company has shifted from an obsession with rolling out stores to an obsession with recovering margins. It’s pitching profitability – not just more pizzas....more earnings per slice of pizza. (EPS…get it..?...ok, I’ll stop now.)

Even a modest recovery in margins could see earnings double, Jun Bei Liu says. 

That’s meaningful upside.

Kerry’s take when we chatted about it afterwards? It’s a very big gamble. With a global store network (i.e. leverage), a small turnaround could spark a re-rate. But management churn, balance sheet worries, and execution risk make it a tough sell.

And in terms of taste? Just hearsay, but apparently it costs more to make pizza dough from scratch (yes, that's flour, yeast and water) than to buy a whole Domino's pizza. If that doesn’t make your sphincter clench, then you have a stomach of steel, and I salute you.

3. Collins Foods (ASX: CKF)

The operator of KFC franchises in Australia, Collins is sometimes a forgotten name in fast food. Back in March of this year, Chris Stott highlighted Collins Foods as an overlooked opportunity. The stock has been under pressure following leadership changes and a period of sluggish growth, but signs of a turnaround are emerging.

The latest AGM update from earlier this month showed stronger-than-expected sales in Australia and Europe, with analysts impressed by innovation, marketing, cost control, and digital investment. Margins are expanding, momentum is real, and the Taco Bell exit looks like a smart clean-up.

Collins Foods has rallied 40% in three months. 

Domino’s trades at half the multiple – a big disconnect given DMP’s historic global strength.

Perhaps, as Jun Bei Liu pointed out, if Collins can rally, Domino’s could be next?

And finally - will tasty favourites like El Jannah, Frangos or Yo-Chi with their ever-expanding network of stores ever make it to the ASX? 

After looking at the three above, I kind of hope not.

Because if the winning formula is cheap, clear cost-out opportunities, smarter pricing, lower overheads – all pointing to more profit, more EPS… the sacrifice, inevitably it seems, is taste.