Norwegian Cruise Lines: More Rough Seas Or Time To Buy?

NCLH: Norwegian Cruise Line logo
NCLH
Norwegian Cruise Line

The stock of cruise operator Norwegian Cruise Line Holdings (NYSE:NCLH) has fallen nearly -12.4% in the last 5 trading days, which is a much sharper decline compared to the S&P 500 which moved down -2.8%. What is driving down the stock? The simple answer is – it may take longer than expected for the cruise industry to get back on its feet. Why do we say that? There are indicators such as a fresh wave of infections in key European markets and rival Carnival Cruises disposing of higher than expected ship capacity. So what happens next? Does this move suggest further downside or is this a good time to buy? We think that while in the short run the stock may fall, it is likely to be a good long-term bet considering current levels.

We arrive at our conclusion by assessing Norwegian’s recent market movement from three perspectives:

  1. Relative positioning in the market
  2. Underlying financial trends, and
  3. The output of the Trefis machine learning engine which looks at past patterns to predict near term behavior.

Our dashboard Big Movers: Norwegian Cruise Line Moved -12.4% – What Next? lays this out.

Relevant Articles
  1. Beating S&P500 BY 11% YTD, What To Expect From Travelers Stock?
  2. Up 50% Over The Last 12 Months, Is Hyatt Stock Still Attractive?
  3. Capital One Stock Gained 44% In The Last 6 Months, What’s Next?
  4. Up 8% Year To Date As 5G Gains Traction, What’s Next For Verizon Stock?
  5. Up 32% In The Last 12 Months, Where Is BNY Mellon Stock Headed?
  6. Rallying 30% YTD, What’s Spurring The Rally In Applied Materials’ Stock?

What relative positioning suggests: Are you a value investor who identifies and invests in under-priced securities based on market comparisons? Then this might be important to you.

Norwegian Cruise Line’s stock price decreased -70% this year, from $58.41 to $17.50, before moving -12.4% last week, and ending at $15.33. At the beginning of this year, Norwegian Cruise Line’s trailing 12 month P/S ratio was 1.94. This figure decreased -46% to 1.04, before ending at 0.91. This was expected given the world-wide halt in cruise operations, but how is the company relatively placed compared to peers? Compared to Norwegian Cruise Line’s P/S multiple of 0.91, the figure for its peers Carnival and Royal Caribbean stands at 0.76 and 1.69, respectively. The market certainly seems to be rewarding Royal Caribbean more, but it would be hard to expect Norwegian’s multiple to improve until a clearer demand picture emerges.

What fundamentals suggest: Want to consider long term investment? Then pay attention here.

Norwegian Cruise Line’s stock price decreased -12.4% last week. In comparison, the stock has increased 9.7% between 2017 and 2019, and has decreased -71% between 2017 and now. Covid-19 related problems apart, Norwegian’s stock hasn’t returned much for investors in the last few years. But what do underlying fundamentals have to say?

Norwegian Cruise Line’s revenue has increased 19.8% from $5,396 Mil in 2017 to $6,462 Mil in 2019. For the last 12 months, this figure stood at $4,658 Mil, implying a decrease of -28% over 2019 numbers. As far as the profitability goes, Norwegian Cruise Line’s net margins have hovered between 14% and 16% in the last few years, before plummeting to -43.5% in the last 12 months as operations stopped. This suggests that before Covid-19 spread, the cruise line operator was growing consistently while maintaining profitability. We see no reason why it can not get back on the same trajectory once the demand rebounds. With that in mind, the current stock price seems an attractive  entry point for a long-term bet.

What machine learning algorithm suggests: More interested in short term returns? Then you might want to give this perspective more weight.

Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period and suggests about a 48% probability of Norwegian rebounding 10% over the next 21 trading days. Compared to this, the probability of tanking further by -10% is 43%, suggesting a slightly greater likelihood of upside. Overall, it appears that the stock is likely to swing one way or the other by a  meaningful amount in the near term. Our detailed dashboard highlights the chances of Norwegian’s stock rising after a fall and should help you understand near-term return probabilities for different levels of movements.

Taking all 3 perspectives together, we believe that while there my be fluctuations in the near term, Norwegian can give good returns to patient investors in the long run. But, what if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams