Should the recent decline in GYG shares be seen as an expected market correction, and could it be an early signal of further downside ahead?
Since listing there has always been concerns over the perceived inflated share price of Guzman y Gomez (“GYG”). There have been some market corrections, with its share price tumbling from $28.97 on 21 August 2025 to $23.70 on 22 August 2025, a single-day decline of ~18%. This correction came despite GYG’s milestone of surpassing $1 billion in total revenue and achieving 23% year-on-year growth, a move that may have been partly anticipated given GYG remains one of the most shorted stocks on the ASX.
Here we’ll explore the potential factors that may have driven the disconnect between strong financial performance and negative market sentiment, by looking at GYG’s history, current position, and the broader implications such as the rise in short position.
GYG’s history
Since its initial public offering (“IPO”), we have observed that analysts have frequently noted that GYG has been trading at a significant premium to its peers, at times more akin to a technology company than a capital-intensive restaurant chain. Consequently, this raises the question of whether GYG’s valuation has been driven more by narrative and sentiment rather than by underlying business fundamentals, and whether the recent correction represents an adjustment to close this divergence.
To illustrate, the table below shows GYG trading at 5.99x revenue and 46.87x EBITDA multiples, well above the industry medians of 2.10x and 11.26x, respectively.
Some analysts suggest that GYG’s premium valuation may also stem from lingering IPO hype, as investors previously sought a success story after the years of weak listings. GYG’s debut was previously anticipated to mark a turning point for the IPO market, which in 2024 saw just 29 listings, the lowest in the past two decades. However, given the turbulent economic and business environment, fading investor anticipation may have also contributed to the price correction.
Add on to this, as shown below, most of GYG’s revenue comes from company-operated stores (~85% of total revenue), highlighting its capital-intensive nature.
Analysts have also argued that GYG’s sustained share price prior to the correction was partly due to its limited free float, with only ~15% of shares publicly available as more than 50% were under voluntary escrow. However, with these escrow agreements expired in March and August 2025, institutional investors can now sell their stakes, raising the question of whether the recent correction simply reflects economic fundamentals, as increased supply naturally puts downward pressure on price.
Current position
Fast forward to today, GYG’s losses has risen from $6.5m in FY24 to $13.2m in FY25, with further losses anticipated in FY26. Analysts have pointed out that the gap between expectations and performance, given the IPO thesis centred on the US market growth, as the key catalyst for the recent share price correction, the decline from $28.97 on 21 August 2025 to $23.70 on 22 August 2025.
These aforementioned factors, especially the perception of overvaluation, are also reflected in the rising short interest in GYG shares. As shown by in the tables below, the proportion of shares held short has increased from 1.85% in June 2024 to 11.43% in September 2025, placing GYG among the Top 5 most shorted stocks as of late September 2025. Rumours suggest this short-selling is led by Acadian Asset Management, through their AI-driven Australian Equity Long Short fund which took up a position shortly prior to GYG’s August 2025 earnings call, proving to be a profitable trade.
Broader implications
From our view, GYG’s recent price correction cannot be pinned to a single factor. What it does highlight, however, is that valuation remains more of an art than a science, relying heavily on professional judgement and emotion, especially in uncertain economic conditions. Hence this explains the differing views among investors and analysts on whether GYG shares warrant a long or short position. Put simply, arriving at a reasonable estimate of value demands skill, knowledge, and experience.
Outlook
On 9 October 2025, GYG announced a $100m share buyback following an increase in sales and further network growth in the first quarter of FY26, which drove a notable temporary 21% uptick in share price on the morning it was announced from $26.96 to $32.54, before quickly returning to close at $26.35 that day, 2% down from the previous close.
The longer-term outlook for GYG remains unclear but investor interest will remain.
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