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.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.