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.
GYG's franchise returns are market leading.
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 has successfully scaled to $1b in sales with only 224 stores.
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.
GYG is scaling towards 400+ stores by 2030.
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.
Significant operating leverage should grow EBITDA 4 to 5x by 2030.
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.
GYG has significant latent value in global expansion.
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 is a former Engineer with 12 years' funds management experience.
He was the Associate Portfolio Manager of the Aware Super Mid-Cap Industrial Fund since 2020 with Tim Riordan, he joined Aware Super in 2019.
Michael was previously a Long-Short Equities Analyst at Point72 Asset Management. He was also an Equities Analyst at Colonial First State (now First Sentier Investors) for 7 years, to focus on Core fundamental portfolios for the ASX200. Michael holds a Bachelor of Engineering (First Class Honours) and a Bachelor of Commerce both from UNSW. Michael is a CFA Charter Holder. Michael is the Deputy-Portfolio Manager of the Blackwattle Mid Cap Quality Fund.
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The information in this article has been prepared by Blackwattle Investment Partners Pty Limited (ABN 24 663 839 094) (BIP). BIP is a corporate authorised representative of Blackwattle Licensing Pty Limited (ACN 665 711 839 AFSL 547 617) (corporate authorised representative no. 001304362). This article contains general information only and is not intended to promote or recommend any particular product or services offered by BIP. It has been prepared without taking into account the objectives, financial situation or needs of any investor. Before making an investment decision, investors should read the relevant offer document and seek professional advice to determine whether the investment is suitable for them. This article is current as at the date indicated, and may be superseded by subsequent market events or for other reasons. No representation or warranty is provided as to the reliability or accuracy of the information contained in this article. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information. All investments contain risk and may lose value. Neither BIP nor its related bodies corporates guarantee the performance of any financial product or the return of an investor’s capital. Rates of return cannot be guaranteed and any forecasts, estimates or projections as to future returns should not be relied on, as they are based on assumptions which may or may not ultimately be correct. Actual returns could differ significantly from any forecasts, estimates or projections provided. Past performance is not a reliable indicator of future performance. Please contact BIP if you would like to know more about the products and services we offer.
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Michael is a former Engineer with 12 years' funds management experience.
He was the Associate Portfolio Manager of the Aware Super Mid-Cap Industrial Fund since 2020 with Tim Riordan, he joined Aware Super in 2019.
Michael was previously a...
Michael is a former Engineer with 12 years' funds management experience.
He was the Associate Portfolio Manager of the Aware Super Mid-Cap Industrial Fund since 2020 with Tim Riordan, he joined Aware Super in 2019.
Michael was previously a...