The Guzman Y Gomez Ltd (ASX: GYG) share price rallied today, recovering from its sour start to the week. An improved appetite for shares in the Mexican-inspired food joint helped it finish the week in finer form than it began.
At the closing bell, GYG shares fetched $27.75, up 4% from yesterday’s close — squeezing out a weekly gain of 1.2%. Whereas, the S&P/ASX 200 Index (ASX: XJO) stepped up 1.3% during the week.
While the GYG share price might have had a quiet week, could its future be a lot spicer? According to one analyst, store growth is the magic ingredient for one red-hot valuation.
United States key to doubling the GYG share price
Price targets are a dime a dozen. Analysts crunch the numbers and give their best guess on a company’s share price in 12 months, often changing frequently with the release of earnings and other material information.
What is far less common is a price target of more than double the current market rate.
The team at Morgans believes this is within the realm of possibilities for GYG shares. But only if the newly listed company achieves a milestone — and a major milestone at that.
GYG now operates 210 stores in Australia, Singapore, Japan, and the United States, of which only four are located in the US. Analysts at Morgans think the GYG share price could reach $62 apiece if the company reaches 500 restaurants in the US.
It’s a tall order, considering it took the burrito seller 18 gruelling years to grow from one to 210 stores.
GYG aims to have 1,000 stores in Australia by 2050, which ‘appears far from unreasonable’ to Billy Boulton and Alexander Mees of Morgans. The domestic growth forms the basis of the broker’s baseline $30.80 price target.
To arrive at $62, a 123% premium on Friday’s share price, GYG would need 500 US stores alongside the 1,000 Australian outlets.
Why it still mightn’t be enough
The caveat to all of this… it’s a price target for 20 years into the future.
Why does this matter?
Well, a 123% return in one year is phenomenal! … over five years, terrific! … but over 20 years.
If the GYG share price is $62 in 20 years from now, it would equate to an average annualised return of 6.15%, which sounds okay. However, the ASX 200 has averaged around 9% per annum over the past 20 years — no ambitious store rollout required.
The post GYG share price ends the week at $28. Is $62 in its future? appeared first on The Motley Fool Australia.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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