Analysts have expressed surprise at the decision of Guzman Y Gomez (GYG) to mount a share buyback, and some believe the shares are still overvalued despite a large fall in the price since February.
The Mexican fast-food retailer announced it would repurchase up to $100 million of its own shares when it provided a trading update for the first quarter of the 2026 financial year (Q1 2026) on 9 October.
In an ASX announcement GYG said the decision reflected its robust balance sheet and cash generation, represented an efficient use of capital, and was in the best interests of shareholders.
But some analysts queried the decision, with Morningstar equity analyst Johannes Faul labelling it “perplexing”.
He said the company issued $200 million of equity at $22 per share 15 months ago, and it now intends to buy back $100 million with the share price above $26.
“It's a small buyback, but selling low and buying high does not create value for shareholders,” Faul said in a research note.
A similar note was struck by RBC Capital Markets analyst Michael Toner, who said although the buyback was relatively small, it was also unexpected in the context of a significant and somewhat capital-intensive multi-year growth pipeline.
Morningstar maintained its fair value estimate for GYG at $16 per share, a 36% discount to the price at the time of writing, which in turn was 100 times next year's earnings.
He considered this too high, even considering GYG’s growth trajectory, with earnings per share forecast to increase at a compound annual rate of almost 40% over the next decade.
RBC has a price target of $24.00 for the stock, which was issued at $22 in June 2024 and soared to a peak of $45.99 on 19 February before giving up many of the gains since then.
Goldman Sachs rated GYG a ‘sell’ in August with a 12-month price target of $23.50, due to concerns about sales growth, drive-through store margins, a moderating pipeline of store roll-out opportunities and rising United States losses.
The company is capitalised at $2.58 billion at the latest price of $25.03, down 32 cents (1.26%) on the day.
However, Morgans Financial was more bullish, rating GYG a ‘buy’ with a target of $32.30.
Morgans analyst Billy Boulton said GYG was well placed to deliver material earnings growth over a number of years.
“GYG continues to trade on steep multiples; however, with a strong and long dated earnings growth profile we think investors are fairly compensated,” he wrote after the Q1 update.
