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Is the Village Roadshow Ltd share price in the buy zone?

Despite the market sinking lower, the Village Roadshow Ltd (ASX: VRL) share price has had a reasonably positive start to the week.

In early afternoon trade the entertainment company’s shares have edged higher by 1% to $4.00.

Why are its shares higher?

The market appears to have responded positively to news that he company has made a strategic investment in Linius Technologies Ltd (ASX: LNU).

Linius Technologies provides a video streaming technology which transforms cumbersome, static video files into agile, dynamic files that can be easily manipulated on the fly. By doing so, it can deliver an enhanced, custom experience for both broadcasters and end-users.

According to today’s announcement, Village Roadshow has invested $1 million via a private placement of shares.

The key attraction for Village Roadshow appears to be the anti-piracy solution that Linius is developing. Ultimately, the two companies will work together to introduce the technology to industry leaders in the hope of reducing global piracy.

Does this make it a buy?

Whilst this is undoubtedly a positive move considering how much of an impact piracy is having on the industry, I wouldn’t necessarily make an investment case on the back of it.

Overall I feel that Village Roadshow’s shares are a little expensive right now at 35x trailing earnings, especially considering the difficult trading conditions it faces.

Like Ardent Leisure Group (ASX: AAD), Village Roadshow’s theme parks have struggled since the tragic incident at Dreamworld last year.

Unfortunately, as well as this, its cinemas have been struggling due to weaker releases and higher costs.

Until things improve greatly or its shares fall to a more reasonable level, I would suggest investors stay clear of Village Roadshow.

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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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