Background: Guzman y Gomez was founded in 2006 in Sydney, by a former Wall Street hedge fund manager. He actually named the food chain after two of his childhood friends from Mexico. The business has now expanded to 242 stores across Australia, as well as locations in Singapore and Japan...and the US. GYG listed on the ASX in the biggest IPO of the year in 2024, with its market value briefly climbing to around $3 billion.  

What happened: Since listing, GYG has been one of the most heavily shorted stocks on the ASX, meaning investors were betting the burrito dream might unravel. A major part of its strategy relied on expanding into across the US, but its Chicago stores, which first launched in 2020, struggled to gain traction. GyG’s CEO literally flew to Chicago three months ago to try and save the expansion himself.

What else: Then last week, he called a snap meeting with investors to tell them that the US expansion was underperforming expectations, so they’re going to shut down the Chicago stores.... And pull the plug on the US expansion altogether. It’s expected to cost GyG up to $56 million to exit the US. But investors surprisingly welcomed the move, with shares jumping 18%.

What's the key learning?

💡 Sometimes the fastest way to grow is to stop force-feeding a strategy that isn't working. GYG's share price had been sliding since its 2024 listing, falling from a market value above $3 billion to just over $2 billion before the announcement... with much of that tied to concerns around its US performance.

💡 Weak growth bets can weigh heavily on investor sentiment. The main reason for GYG's sliding shares was concern that the US business wouldn't break even until 2037. So it's no wonder it became the fifth most shorted stock on the ASX.

💡 For GyG, it just means focusing on what’s actually working - its Australian business. And with the share price rising on the news, investors were clearly celebrating some capital discipline from the burrito food chain.