Norwegian Cruise Line Holdings Ltd. (NCLH) is a global cruise company that operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. It offers itineraries ranging from three days to 180-days calling on various locations across the globe.

On August 19, 2022, NCLH’s subsidiary Oceania Cruises’ CEO Howard Sherman filed a Form 4 with the SEC disclosing the sale of 86,225 shares of NCLH at an average price of $13.63, raising about $1.20 million in capital.

The company’s current cumulative booked position for the second half of 2022 remains below the comparable 2019 period. The company’s total debt on June 30, 2022, was $13.20 billion, significantly higher than its liquidity of about $2.90 billion, which includes cash and cash equivalents and undrawn commitment.

The company expects to post a net loss in the ongoing quarter despite higher expected occupancy of 80%.

NCLH failed to surpass the consensus EPS and revenue estimates in the last reported quarter. Its EPS came 36.7% below analyst estimates, while the revenue missed estimates by 4.8%. It has failed to surpass Street EPS estimates in each of the trailing four quarters.

NCLH’s stock has declined 33.8% in price year-to-date and 45.8% over the past year to close the last trading session at $13.72. It is trading 53.4% below its 52-week high of $29.45, which it hit on November 5, 2021.

Here’s what could influence the performance of NCLH in the upcoming months:

Mixed Financials

NCLH’s total revenue increased significantly to $1.18 billion for the second quarter that ended June 30, 2022. Its total cruise operating expense increased 329.8% year-over-year to $1.07 billion.

The company’s operating loss narrowed 34.4% year-over-year to $396.80 million. Also, its net loss narrowed 29% year-over-year to $509.32 million. In addition, its loss per share narrowed 37.1% year-over-year to $1.22.

Mixed Analyst Estimates

Analysts expect NCLH’s EPS for fiscal 2022 to remain negative, and its EPS for fiscal 2023 is expected to increase 129.3% year-over-year to $1.25. Its revenue for fiscal 2022 and 2023 is expected to increase 631.3% and 68.8% year-over-year to $4.74 billion and $8 billion.

Stretched Valuation

In terms of forward EV/S, NCLH’s 3.76x is 229.8% higher than the 1.14x industry average. Likewise, its 1.22x forward P/S is 33.8% higher than the 0.91x industry average. And the stock’s 10.04x trailing-12-month P/B is 294.7% higher than the 2.54x industry average.

Lower-than-industry Profitability

NCLH’s trailing-12-month net income margin is negative compared to the 5.99% industry average. Likewise, its trailing-12-month levered FCF margin is negative compared to the 2.08% industry average. Furthermore, the stock’s 0.12% trailing-12-month asset turnover ratio is 88% lower than the industry average of 1.04%.

POWR Ratings Reflect Bleak Prospects

NCLH has an overall F rating, equating to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. NCLH has a D grade for Value, consistent with its stretched valuation.

It has a D grade for Quality, in sync with its lower-than-industry profitability. It has a beta of 2.47, justifying its F grade for Stability.

NCLH is ranked last out of 4 stocks in the F-rated Travel - Cruises industry. Click here to access NCLH’s ratings for Growth, Momentum, and Sentiment.

Bottom Line

Despite the expected rise in occupancy, NCLH is expected to post a net loss due to the overall uncertain macroeconomic environment and the effects of the Ukraine – Russia conflict.

Given its stretched valuation and lower-than-industry profitability, it could be wise to avoid the stock now.

NCLH shares were trading at $13.61 per share on Monday afternoon, down $0.11 (-0.80%). Year-to-date, NCLH has declined -34.38%, versus a -14.42% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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