Are Experience Co Ltd shares in the bargain bin?

Year-to-date the Experience Co Ltd (ASX: EXP) share price performance has been a bit of a disappointment and finds itself down 33.5% compared to a small gain by the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). The majority of this decline came in the last two weeks after the adventure tourism company downgraded its full-year revenue and earnings guidance due to the impact of unfavourable weather conditions. Instead of previous guidance of revenue in the range of $135 million to $140 million and EBITDA between $35 million to $37 million, management now expects revenue in the range of $127 million…

Year-to-date the Experience Co Ltd (ASX: EXP) share price performance has been a bit of a disappointment and finds itself down 33.5% compared to a small gain by the benchmark S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

The majority of this decline came in the last two weeks after the adventure tourism company downgraded its full-year revenue and earnings guidance due to the impact of unfavourable weather conditions.

Instead of previous guidance of revenue in the range of $135 million to $140 million and EBITDA between $35 million to $37 million, management now expects revenue in the range of $127 million to $130 million and EBITDA of between $30 million and $31 million.

As a predominantly outdoor tourism company, inclement weather is a major issue for the company and reduces the number of days its businesses can operate.

While a little bad weather here and there is expected each year, the weather experienced over the last couple of months in North Queensland has been described as a once in a generation occurrence. As you might expect, this caused the forced closure of many of its businesses for a prolonged period of time.

Clearly this is a disaster for its FY 2018 results, but I think it is important to consider that this is unlikely to be repeated in FY 2019.

Which I believe makes the selloff of its shares a buying opportunity for investors today.

Especially given the tourism boom that Australia is experiencing and the growing preference for experience-based activities from Millennials.

As the largest player in the industry by some distance, I believe Experience Co is well positioned to benefit from increasing demand for adventure tourism.

Furthermore, following the selloff, I estimate that Experience Co’s shares are changing hands at approximately 21x full-year earnings.

I don’t think this is overly expensive given the fact that earnings growth should accelerate significantly in FY 2019, barring any unforeseen weather events.

Because of this, I would say that Experience Co’s shares are in the bargain bin today and well worth considering as an investment alongside other tourism shares such as Crown Resorts Ltd(ASX: CWN) and Sydney Airport Holdings Pty Ltd (ASX: SYD).

In addition to Experience Co, these up and coming stars could also be in the buy zone today.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited and Sydney Airport Holdings Limited. The Motley Fool Australia owns shares of EXPERNCECO FPO. 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 Scott Phillips.

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