There are few blue chips that have done better than the Sydney Airport Holdings Ltd (ASX: SYD) share price over the past few years. The share price has risen by 109% since December 2012.
After this historic rise it's worth asking if the current share price is a buy. It's important to remember that buyers today are starting from zero, it doesn't matter how much the share price has grown in the past.
So, to buy or not to buy? That is the question.
Buy case
Sydney Airport operates Australia's biggest and most frequently used airport. Millions upon millions of passengers use the airport every year and that isn't going to change any time soon.
The future growth of passengers is what makes Sydney Airport attractive. Australia, particularly Sydney, is one of the top destinations that middle class Asians would like to visit.
Sydney Airport is already seeing large growth in arrivals from overseas. In its latest monthly update for October 2017 the number of international passengers grew by 5.8% compared to October 2016.
The business has been a great dividend stock for shareholders that bought it for that reason. In 2017 it grew its dividend by 16% and it currently has an unfranked dividend yield of 4.37%. This would still provide decent income, although the yield isn't quite as good as before.
Don't buy case
Infrastructure shares like Sydney Airport have done so well partly because of the declining interest rates. Lower interest rates make 'income' stocks like Sydney Airport seem more attractive because of the defensive yield it offers.
Interest rates haven't moved up in Australia, but the RBA has signalled that the next move will be up. The US interest rates have already moved up. At some point the market may decide Sydney Airport doesn't deserve to be trading as high of a multiple as it currently is.
In the long-term the planned second Sydney Airport will take passengers and potentially revenue away from Sydney Airport Holdings.
Foolish takeaway
Sydney Airport Holdings is currently trading at 41x FY18's estimated earnings. As an investor who tries to beat the index, I couldn't invest at today's price. I'd rather wait a few months or even a year or two for the market to be less enthusiastic about the share price.
