Should you buy Ardent Leisure Group & Mantra Group Ltd at this share price?

As far as stock market speculation myths go, the age old adage which many pundits believe in is “sell in May and go away”. The phenomenon known as “capital loss” selling often takes hold in May as investors seek to reduce their capital gains for the income tax year by crystallising capital losses before 30 June.

Whilst this means the S&P/ASX 200 Index (ASX: XJO) perennially underperforms in May and June (compared to the rest of the months in the year), I find that the start of May is generally a good time to revisit recent outperformers and reassess their position in any portfolio.

With both Ardent Leisure Group (ASX: AAD) and Mantra Group Ltd (ASX: MTR) soaring over 15% during April, I believe these two are worth a closer look today.

Ardent Leisure

Shares in entertainment conglomerate Ardent Leisure rallied a formidable 15% over the month of April after management announced traffic to its embattled Dreamworld theme park had improved.

Constant centre growth at its crown jewel – its Main Event business – led sales 25.1% higher in the division adding to optimism. Additionally, a raft of board changes and the possibility of a corporate raid by Ariadne Australia Limited (ASX: ARA) further contributed to the share price rebound.

However, in my view, the market is now pricing in all of this news with the company trading at full multiples (and assuming a full Dreamworld recovery). Therefore, absent a takeover offer, I can’t see the shares continuing higher in the near term.

Mantra Group

Sticking with the leisure and hospitality theme, Mantra Group’s share price swelled 17% over the course of late March and April.

Although strictly speaking the rally started on 22 March when Mantra’s shares changed hands at $2.59, the speculation driving these gains came to fruition when it was widely reported that international hoteliers InterContinental Hotels Group and Marriott International were running the ruler over Australia’s second largest accommodation provider at the start of April.

Whilst a takeover offer remains on the cards, it is still pure speculation. Accordingly, with Mantra’s core business struggling to grow organically, I believe the current share price represents fair near term value for the hotel operator.

Foolish takeaway 

Tax loss selling isn’t the only reason for market underperformance in May and June.

For example, big bank stocks Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corporation (ASX: WBC) and Macquarie Group Ltd (ASX: MQG) all trade without rights to dividends by mid-May. This accounts for a decent chunk of the ASX’s “May-hiccups”, as their shares often lose value after trading ex dividend.

Alongside the banks, ASX 50 staples Transurban Group (ASX: TCL) and Sydney Airport Holdings Ltd (ASX: SYD) trade ex-distribution in late June.

Though these reasons don’t necessitate that Ardent and Mantra are due to fall, I don’t believe they’re candidates for strong price gains either. With both shares enjoying market-beating rallies recently, I believe their current respective share prices represent fair value in the absence of near term catalysts (like a takeover).

Although I remain optimistic about both companies long term prospects given their leverage to Australia’s booming tourism industry, in my view, investors in need of short term cash could look to take profits by selling some of their holdings in each of Ardent Leisure and Mantra Group for now.

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Motley Fool contributor Rachit Dudhwala 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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