Norwegian Cruise Line Holdings Ltd. (NCLH), which is based in Miami, is known for its Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands. The company announced on August 13 that its game-changing new ship, Norwegian Prima, was floated out from the drydock at Fincantieri shipyard in Marghera, Italy, marking a significant milestone.

However, the stock has declined 4.8% in price over the past month and 24.3% over the past three months to close yesterday’s trading session at $24.57. NCLH’s losses widened in the second quarter. Also, the company is expected to report losses in the coming quarter because its fleet is not yet fully operational. So, NCLH’s near-term prospects look bleak.

Here’s what we think could influence NCLH’s performance in the coming months:

COVID-19 Pandemic-Related Headwinds

NCLH has not provided detailed guidance regarding its near- or longer-term financial or operational results due to the uncertainties surrounding the resurgence of COVID-19 cases. However, its management said it would report a net loss for the third quarter, ending September 30, 2021, and expects to report a net loss until it can resume regular voyages. In addition, even though NCHL expects to have 40% of its fleet operational by the end of the third quarter, its full fleet is not likely to be operational before April 2022.

Weak Financials

For the second quarter, ended June 30, 2021, NCLH’s total revenue decreased 74.2% year-over-year to $4.37 million. The company’s adjusted net loss came in at $714.69 million, representing a 7.2% year-over-year rise. Also, its adjusted loss per share came in at $1.93 compared to $2.78 in the prior-year period.

Lofty Valuation

In terms of forward EV/S, NCLH’s 19.10x is 1,181.9% higher than the 1.49x industry average. Likewise, the stock’s 9.23x forward P/S is 647.5% higher than the 1.23x industry average.

POWR Ratings Reflect Bleak Prospects

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

Our proprietary rating system also evaluates each stock based on eight different categories. NCLH has an F grade for Sentiment and a D grade for Growth. This is justified because analysts expect its revenue to decline by 27.6% year-over-year to $927.17 million in its fiscal year 2021. Furthermore,  its EPS is expected to remain negative in the current year.

NCLH has an F grade for Value, which is in sync with its higher-than-industry valuation ratios. In addition, the stock has an F grade for Stability, consistent with its 2.81 beta .

NCLH has a D grade for Quality. This is justified given its negative values for trailing-12-month ROCE, ROTC, and ROTA, respectively, versus the 17.66%, 7.37%, and 6.26% industry averages.

In addition to the POWR Rating grades I’ve just highlighted, we’ve also rated NCLH for Momentum. Click here to get all the NCLH ratings.

Also,  of the four stocks in the F-rated Travel - Cruises industry, NCLH is ranked last.

Bottom Line

NCLH is one of the leading global cruise companies. However, its near-term prospects look bleak because it cannot resume regular voyages and is incurring losses. Moreover, its EPS is expected to decline at a rate of 24.1% per annum over the next five years. So, the stock looks overvalued at its current price level and is best avoided now.

How Does Norwegian Cruise Line (NCLH) Stack Up Against its Peers?

NCLH has an overall POWR Rating of F, which equates to a Strong Sell rating. Currently, there are no stocks in the Travel - Cruises industry with an A (Strong Buy) or B (Buy) rating. The other three industry participants Lindblad Expeditions Holdings Inc. (LIND), Royal Caribbean Cruises Ltd. (RCL), and Carnival Corporation (CCL), are also rated F.

NCLH shares were trading at $25.19 per share on Monday afternoon, up $0.60 (+2.44%). Year-to-date, NCLH has declined -0.94%, versus a 19.82% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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