Why a Dreamworld update sent the Ardent Leisure Group share price lower

The Ardent Leisure Group (ASX:AAD) share price has dropped lower in morning trade following the release of a trading update. Should you buy the dip?

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The Ardent Leisure Group (ASX: AAD) share price has edged lower in morning trade after the entertainment company provided an update on its embattled theme parks business.

At the time of writing its shares are down just over 1% to $2.10.

What happened in May?

According to the release, in May Ardent Leisure's theme parks saw a 35.8% drop in visitation and an unaudited 35.4% drop in revenue to $3.9 million, compared to the prior corresponding period.

Whilst this is an improvement in comparison to March and April's data, it is still a touch behind February's data.

Visitation numbers for the March/April period fell largely as a result of inclement weather brought on by Cyclone Debbie.

So with the weather back to normal in May I had expected a slightly stronger result. Considering its shares have edged lower this morning, it would appear as though the market had as well.

What's next?

The June/July school holiday period will be key to evaluating the turnaround of its theme parks in my opinion.

Management has worked hard on revenue driving initiatives in the lead up to the school holiday period. This includes the launch of its June 2018 season pass and the return of after-hours events.

If the school holiday period is a success, it could help limit the theme park segment's EBITDA loss. Management still expects the segment to post an EBITDA loss of between $2 million and $4 million for the year ending June 30 2017.

Should you invest?

Whilst I expect the Dreamworld incident and the underperformance of its theme parks will weigh on its shares for some time, I am very bullish on the long-term growth potential of its Main Event business in the United States.

I believe that business makes Ardent Leisure worth considering as a buy and hold investment and a far better option to rival Village Roadshow Ltd (ASX: VRL).

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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