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Why the Village Roadshow Ltd share price plunged 8% today

Unfortunately for its shareholders, the Village Roadshow Ltd (ASX: VRL) share price has fallen sharply in early trade.

At the time of writing the entertainment company’s shares are down 8% to $3.68.

What happened?

This morning Village Roadshow provided the market with an update on its Theme Parks and Cinema Exhibition businesses.

As you might have guessed from the share price movement, it wasn’t an overly positive update.

Due to the tragic incident at the Ardent Leisure Group (ASX: AAD) operated Dreamworld theme park last year, trading at Village Roadshow’s theme parks has been significantly impacted.

As a result, earnings before interest, tax, depreciation, and amortisation (EBITDA) from its theme parks is expected to be $55 million in FY 2017.

This will be a 37.5% decline on last year’s theme park EBITDA of $88 million.

Further to this, as part of its end of year review of asset carrying value, the company expects to recognise an impairment of the Wet’n’Wild Sydney assets of approximately $65 million pre-tax.

Unfortunately things aren’t much better for its cinema segment. According to today’s release, the company now expects full-year EBITDA in the segment to be below last year’s result.

All in all, this means that Village Roadshow expects company-wide net profit after tax and before material items and discontinued operations to be between $20 million and $23 million in FY 2017.

This is a disappointing drop of 64% to 69% on last year’s profit after tax of $50.9 million.

Should you buy the dip?

Whilst I do expect that the performance of its theme parks will improve in FY 2018, I still wouldn’t suggest investors snap up shares today.

As I warned just yesterday, Village Roadshow’s shares still look overly expensive despite a sharp drop in the last 12 months.

In light of this, I would suggest that investors continue to hold off an investment and wait for a significant improvement in its performance.

Whilst you are waiting for Village Roadshow's performance to improve, I would suggest you consider an investment in one of these explosive shares.

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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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