Are Guzman Y Gomez shares a buy after rebounding 28% from a historic low?

Guzman Y Gomez Ltd (ASX: GYG) shares are trading in the green again on Wednesday afternoon. 

At the time of writing, the shares are up slightly, around 0.3%, to $19.46 each.

The increase means the Mexican-themed fast-food restaurant chain’s shares have rebounded by around 22% from last week’s slump. And they’re 28% higher than a historic low recorded in early April.

For the year-to-date, however, the ASX consumer discretionary shares are still down around 10%, and they’re 37% below trading levels seen a year ago.

Why is the stock rebounding?

After multiple headwinds and sombre sentiment so far this year, Guzman Y Gomez shares look to have changed trajectory.

The latest rebound this week follows news that the quick-service restaurant operator has decided to close its struggling US stores.

On Friday last week, the company announced it had exited the US market and had ceased trading in its Chicago restaurants, effective immediately. Management said that the decision was made after the business failed to meet key financial performance targets, despite solid efforts by the US team.

Founder and Co-CEO Steven Marks said that the board concluded that the business is unlikely to deliver the performance that would justify continued investment of shareholder capital.

It looks like investors were pleased with the announcement. This is likely because the company has made an effort to halt losses and refocus the business in Australia and Asia. 

A move like this reflects very positively on management because it isn’t easy to admit defeat and change course when a strategy starts to fail. 

The move also allows Guzman Y Gomez to refocus its business expansion in markets where the brand is stronger, and the growth trajectory is more sound.

What are the company’s growth plans now?

Instead, Guzman Y Gomez said its international expansion efforts will now focus on master franchise partners in Singapore and Japan. 

Both of these partners are delivering strong sales growth, with Singapore recently opening its 24th restaurant. The company still believes disciplined global expansion remains possible in the right markets.

The company’s long-term goal remains to reach 1,000 restaurants in Australia, with segment EBITDA at 10% of network sales.

Is this the beginning of a share price resurgence?

Analysts are mostly bullish on Guzman Y Gomez shares over the next 12 months, with many expecting the latest rally to continue.

TradingView data shows that 10 out of 14 analysts have a buy or strong buy rating on the fast-food retailers’ shares. Another two have a hold rating, and two rate the stock as a sell or strong sell.

The average $24.60 target price implies a potential 27% upside at the time of writing. Meanwhile, some are even more optimistic and tip the shares to jump 60% higher to $31 over the next 12 months.

The post Are Guzman Y Gomez shares a buy after rebounding 28% from a historic low? appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies 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.