Norwegian Cruise Line Holdings Ltd. (NCLH - Get Rating) in Miami, Fla., is a global cruise corporation that operates the brands Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises. These brands provide cruises to over 490 destinations globally with a combined fleet of 28 ships and almost 60,000 berths. NCLH’s shares have gained 22.6% in price over the past month.

However, the stock is down 27.1% over the past year and 19.2% over the past six months to close yesterday’s trading session at $21.45. In addition, it is currently trading 36.8% below its 52-week high of $33.95, which it hit on June 09, 2021.

NCLH’s losses widened substantially in its last reported quarter. In addition, because its fleet is not yet fully operational, the company is projected to incur losses in the coming quarter. As a result, NCLH’s near-term prospects appear bleak.

Here is what could shape NCLH’s performance in the near term:

Stretched Valuation

In terms of forward Price/Sales, the stock is currently trading at 1.57x, which is 668.1% higher than the 0.94x industry average. Also, its 3.49x forward EV/Sales is 209.4% higher than the 1.13x industry average. Furthermore, NCLH’s 4.16x forward Price/Book is 64.5% higher than the 2.53x industry average.

Inadequate Financials

NCLH’s total revenue increased significantly year-over-year to $487.44 million for the fourth quarter, ended Dec. 31, 2021. Its operating loss grew 25.6% from its year-ago value to $686.87 million. The company’s net loss surged 112.8% from the prior-year quarter to $1.57 billion, while its loss per share amounted to $4.01 over this period. In addition, its cash and cash equivalents decreased 54.4% to $1.51 billion for the year ended Dec. 31, 2021.

Poor Profitability

NCLH’s 0.03% trailing-12-months asset turnover ratio is 96.7% lower than the 1.06% industry average. Also, its trailing-12-months ROA, EBITDA margin, and ROC are negative at 24.1%, 276.9%, and 9.9%, respectively. In addition, its cash from operations stood at a negative $2.47 billion compared to the $159.46 million industry average.

POWR Ratings Reflect Uncertainty

NCLH has an overall F rating, which equates to a Strong Sell in our proprietary 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 an F grade for Stability and Value. The stock’s 2.59 beta is consistent with its  Stability grade. In addition, the company’s higher-than-industry valuations are in sync with the Value grade.

Among the four stocks in the F-rated Travel – Cruises industry, NCLH is ranked #2.

Beyond what I have stated above, one  can view NCLH ratings for Quality, Momentum, Growth, and Sentiment here.

Bottom Line

Despite being one of the leading global cruise companies, NCLH’s near-term prospects look bleak because the company continues to recover from pandemic-led disruptions and has not yet resumed operating at full capacity. In addition, analysts expect its EPS to decline at the rate of 24.1% per annum over the next five years. So, given its lofty valuations, we believe the stock is best avoided now.

NCLH shares rose $0.06 (+0.28%) in premarket trading Thursday. Year-to-date, NCLH has gained 4.10%, versus a -6.47% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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