My ABC News colleague David Taylor writes:
On the first day of trading yesterday the Guzman y Gomez (GYG) stock jumped 36 per cent from $22-$30.
Veteran share market commentator Marcus Padley’s following the stock and he’s not sold on what he describes as a “love in”.
“Everybody is talking about what a fantastic stock it is and how they are going to grow from 185 to 1000 outlets but let me explain why it’s gone up so much after the float,” he noted.
“It’s a tiny float ($335 million) of a now much larger company ($3.3 billion) and the stock has gone to a small number of institutions and it is in their interest for the share price to go up not get smashed.
“Plus some of the major shareholders (TDM Growth Partners with 26.2%) have escrowed themselves (they are not allowed to sell) until the results are announced in 2025 (just over a year).
“With such a small float so tightly held any institution that’s got half a brain does not jump in on day one and smash the stock, instead they know that their best interests are met by buying (not selling) in a tight market and in so doing achieving extraordinary gains with relatively little buying.
“That’s the game.
“Everybody wants it up and no institution gifted an allocation in a tight IPO, wants or needs to smash up the price or they’ll never get offered anything ever again by the issuing brokers Morgan Stanley and Barrenjoey (who own 9.6%) or any other broker that those brokers talk to,” Marcus Padley said.
“So it’s a love in.”
How about that? Who’d of thought everyone agreeing to get rich and stay that way would work?
The current valuation puts GYG on a PE of 500x this year’s prospectus earnings forecasts of 6 cents per share, and on 145x next year’s forecast of 21 cents per share.
“You can talk about the plans to expand to 1000 outlets and you could price in some of that potential growth, but it’s only going to happen if the Mexican wave continues, and if it doesn’t the current share price is valuing each outlet at $17.8 million.”
“Anyone who runs a franchised fast food joint will tell you, that’s ridiculous.
“So you are paying a lot for a future that is uncertain.”
“If they had 1000 outlets in Australia that’s one outlet per 25,000 people.”
“That means there would be 203 GYG outlets in Melbourne, 212 in Sydney, 52 in Adelaide.
“Need I go on.
“You get the idea.
“It’s a liquidity squeeze not an undervalued stock. I’m not going to buy it,” Padley wrote.