The Guzman Y Gomez Ltd (ASX: GYG) share price had a rough ride in February.

During the month, the Mexican fast-food chain's shares sank 13% to close at $34.60.

Though, that is only telling half the story. At one point, its shares had surged almost 16% month to date to a record high of $45.99, meaning they ultimately fell around 25% from their peak.

So, what went wrong? Let's take a closer look.

Strong results but concerns remain

The catalyst for the decline was Guzman Y Gomez releasing its half-year results.

While those results showed impressive growth in its Australian operations, they left investors concerned about its US expansion. Here are the key highlights:

• Network sales up 22.8% to $577.9 million
• Revenue up 27% to $212.4 million
• EBITDA up 28.3% to $31.6 million
• Profit after tax up 91.2% to $7.3 million
• Guidance: On track to exceed its FY25 prospectus profit forecast

While those numbers are impressive on paper, the performance of its US business was a major red flag for investors.

The company reported a 12.7% decline in network sales in the United States, with EBITDA in the region falling 62% to a $5 million loss.

Given the sky-high valuation that the Guzman Y Gomez share price has been trading at, investors were expecting a much smoother expansion into the lucrative US market. Instead, the company is facing significant challenges in growing brand awareness and competing against well-established players.

Is the Guzman Y Gomez share price good value now?

The team at Goldman Sachs isn't in a rush to recommend the company's shares to clients.

In fact, the broker continues to rate the stock as a sell with a $33.60 price target. This suggests that the Guzman Y Gomez share price still has potential downside despite the sizeable pullback.

There are three key risks that the broker is highlighting to clients:

1. Aggressive expansion plans – Goldman believes Guzman Y Gomez's long-term store expansion strategy may be too ambitious, particularly in a crowded US market.
2. High valuation concerns – The broker feels that the stock has been valued similarly to high-growth US peers without considering the risks and challenges of scaling up in the fast-food industry.
3. Upcoming share releases from escrow – Around 13% of total shares will be released from escrow in March 2025, followed by another 40% in August 2025. This could put additional selling pressure on the stock as early investors look to cash out.

Commenting on the company, the broker said:

We consider Guzman to be a high quality QSR operator with multiple levers available to grow operations, as well as a high likelihood of exceeding FY25 prospectus forecasts. While we forecast top-line growth and margin expansion, the basis of our Sell thesis is centered on

1) an overly ambitious long-term store expansion profile that has no recent successful precedent in the Australian market; and 2) a stretched valuation that has inappropriately, in our view, been pegged to the highest growth US-peers without taking into consideration the market differences and risks associated with an aggressive store expansion. 3) Separately we note an overhang exists with c.13% of total shares expected to be released from escrow in March 2025 [and 40% in August 2025].