Is the Sydney Airport Holdings Ltd share price in the buy zone?

The Sydney Airport Holdings Ltd (ASX:SYD) share price could be one to watch today after the release of its latest traffic figures. Do they make it a buy?

a woman

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So far this year the Sydney Airport Holdings Ltd (ASX: SYD) share price has gained a solid 6.5% compared to a 2.3% gain by the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

A strong full-year result in February is largely behind the share price movement. The company recently reported a 10.3% rise in operating profit, thanks largely to a solid increase in passengers through its terminals.

The good news for shareholders is that the passenger numbers have remained strong in FY 2017.

In February Sydney Airport welcomed 1,222,000 international passengers, up 4.2% on the prior corresponding period. This is especially impressive considering that last February was a leap year and included the Lunar New Year.

Because of the impact of the leap year, domestic passengers fell 2.5% to 2,062,000. Though it is worth noting that the daily average increased 1% to approximately 73,643 international passengers.

Should you invest?

With many major airlines increasing capacity into and out of Sydney Airport, I have no doubt that the company is positioned well for another solid year.

However, at 45x trailing earnings its shares are certainly on the expensive side. While Sydney Airport is likely to be a big winner from the tourism boom, I feel at the current share price there is limited upside potential.

Furthermore, as bond yields rise in the United States, I am concerned that bond proxies like Sydney Airport and Transurban Group (ASX: TCL) could fall out of favour with investors.

For this reason I would suggest investors look to gain exposure to the tourism boom through investments in Event Hospitality and Entertainment Ltd (ASX: EVT) or Apollo Tourism & Leisure Ltd (ASX: ATL) instead.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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