Off the Menu: The spicy ASX Growth Stock that deserves a second bite

Guzman Y Gomez (ASX: GYG) has had a rollercoaster start to its short stint as a listed company. GYG debuted on the ASX in June 2024 with a 36% bounce from its $22 IPO price. It then climbed to $45 a share in February 2025 after index inclusions and continued strong sales momentum drove material earnings upside compared to prospectus forecasts. But as the voluntary escrow restrictions started expiring from February 2025, the stock has drifted lower, culminating in the 20% fall on its August 2025 results after a weaker than expected trading update. 

GYG has almost completed the round trip back to its IPO price even while handsomely beating its prospectus forecasts. We believe the market is being too quick to discount the GYG growth story because of slower same-store-sales growth (SSSg) for the start of FY26.

At Blackwattle Mid Cap Quality, we view the market through a quality lens, targeting the market leaders in each sector. We believe our singular focus on quality is our competitive advantage, identifying quality early, quality improving and quality enduring, better than the market.

We view GYG as a prime example of early quality, with a long runway of capital light, earnings growth driven by scaling its highly profitable franchise store network.

We discuss the 3 key reasons why the GYG journey has significant long-term runway:

1. Best-in-class Franchise ROI underwrites multi-year store rollout 

The health of the franchisee is the most important driver for any franchise business, as robust franchisee profitability enables a franchised brand to profitably scale and sustain a large store network.

GYG’s strong store economics for its Australian network provide best-in-class franchisee returns domestically, generating significant demand from potential franchisees.

The strong store economics and insatiable demand from potential franchisees allows GYG to meticulously choose the highest footfall location for its new stores as well as franchisees with strong operating experience. GYG has successfully scaled their Australian network sales from $250m p.a. to over $1b p.a. in the past 5 years, at a similar rate to international success stories such as Chipotle (from 2002 to 2007) and well ahead of domestic success stories such as Domino’s Pizza (from 2003 to 2017).

GYG’s store economics underwrites its store network expansion by 30-40 stores p.a., close to doubling GYG’s store network to over 400 stores in the next 5 years and almost tripling network sales.

2. Significant operating leverage 

GYG’s multi-year domestic network expansion should not only generate strong topline growth, but significant earnings leverage. In the past 3 years, GYG domestic network sales have grown by over 25% CAGR, while EBITDA has grown by over 40% CAGR, highlighting the significant operating leverage as the business model scales. This operating leverage will continue, and GYG has targeted EBITDA to Network Sales of 10% in 5 years.

With network sales expected to triple over the next 5 years, EBITDA should grow 4 to 5x, making GYG one of the cheapest, quality growth stocks on the ASX trading on 25x EV/EBITDA for FY26 while growing EBITDA by 35% CAGR over the next 5 years.

3. Undervalued Global expansion optionality

GYG has stores in the US, Singapore and Japan, and while Singapore has been the only success so far, the market ascribes no value to GYG being able to successfully expand beyond Australia. Focus has been on GYG’s venture into the competitive US market, and with only 6 unprofitable stores, will still require some time before it can be confirmed a success or failure. While a successful outcome would be incredibly valuable, a failure would see unprofitable stores closed and US losses removed, uplifting FY26’s EBITDA by ~15%.

We also see significant global expansion opportunities in New Zealand and the UK which provide free upside optionality. Both countries have similar markets to Australia, and we expect both will come into focus as the US venture is closer to certainty. Using the Australian success case as a proxy, GYG could potentially reach one third of the penetration of McDonald’s and KFC in NZ and UK over time.

There is significant latent value from GYG global expansion, with potential franchise royalties from NZ and UK in a success case more than tripling GYG’s current Australian EBITDA.

Short-term noise misses the long-term compounding story

We view the recent slowing of same-store-sales growth (SSSg) in the 7-week trading update as “noise”, with GYG seeing slower SSSg numerous times in the past 7 years even though SSSg has compounded over 15% CAGR across the period. We remain confident that GYG’s operational track record of quality food and service, menu updates, and “healthy & fresh” marketing should continue to drive robust SSSg through the cycle.

The recent share price pull back towards IPO levels is a highly attractive opportunity to own an early quality, long term compounding business as it scales its highly profitable franchise store network domestically over the next decade, with further global upside optionality.

Quality Investing

At Blackwattle we are constantly on the lookout for these mis-priced, high-quality businesses with internal levers. We understand the exceptionalism of these businesses in generating significant shareholder returns, so when we do discover one, we look to become long-term shareholders and capital partners, enabling our portfolios to capture the long-term compounding of outperformance through market cycles.

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Michael Teran and Tim Riordan