Unfortunately for its shareholders, the Ardent Leisure Group (ASX: AAD) share price has tumbled approximately 32% in the last six months.
The tragic incident at its Dreamworld theme park in October and the inevitable drop in visitor numbers are largely behind the decline.
I believe this sell-off has created an opportunity for investors to make a buy and hold investment today. Here are four reasons why:
Reason 1: Signs of improvement
In February the company reported unaudited Theme Parks revenues of $4.4 million, down 35% on the prior corresponding period. While this is still a big drop, it was a big improvement on both December and January. During these two months Theme Parks revenues fell 63% and 50.4% respectively. March's data will be released imminently and I expect to see further improvements.
Reason 2: Main Event
The jewel in the crown in my opinion is its Main Event business in the United States. In its half-year results Main Event's 31 centres accounted for 63% of total company pro-forma earnings before interest, tax, depreciation, and amortisation. Although constant centre sales dropped a disappointing 2.9% during the period, this was in line with the rest of the industry and has been blamed on the U.S. presidential election. I expect to see a stronger second-half from the business.
Reason 3: Strong growth potential
When making a buy and hold investment I like to pick companies which have significant room to grow. I believe Ardent Leisure ticks this box. Management aims to open 11 new Main Event centres in FY 2017, before ultimately expanding the centre footprint to as many as 200 locations across the United States. Whilst this is admittedly an ambitious target, with an estimated 22% of the U.S. population under the age of 18, I believe there is a big enough target market to accommodate a network of this size.
Reason 4: Its generous dividend.
At the current share price Ardent Leisure's shares provide investors with an unfranked trailing 3.2% dividend. Whilst this is by no means as lucrative as rival Village Roadshow Ltd (ASX: VRL), if the company does deliver on its enormous growth potential then I believe it has significant room to increase in the future.
Whilst there are risks investors should consider such as Dreamworld taking longer to recover than expected or the Main Event roll out falling short of its target, I believe the current share price provides investors with a compelling risk/reward.
For this reason I think it would be a good investment option for patient buy and hold investors.
