Norwegian Cruise Line Holdings (NCLH - Get Rating) is a global cruise company that operates the brands Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises. With a combined fleet of 28 ships and about 60,000 beds, these brands provide cruises to over 490 locations worldwide.

The stock is down 63% over the past year and 44.7% year-to-date to close yesterday’s trading session at $11.46. While the company has witnessed strong demand and growth in bookings in the last reported quarter, it continues to battle with accelerated costs to resume cruise voyages. Its total cruise operating expense surged 266.1% in 2022.

In addition, Deutsche Bank recently lowered the stock’s price target from $23 to $17, indicating bleak near-term growth prospects.

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

Inadequate Financials

NCLH’s revenue increased significantly year-over-year to $521.94 million for the first quarter ended March 31, 2022. However, its loss from operations grew 20.6% from the prior-year quarter to $688.76 million. The company reported a net loss of $982.71 million, while its loss per share amounted to $2.35.

Negative Profit Margins

NCLH’s trailing-12-month asset turnover ratio of 0.06% is 94% lower than the industry average of 1.02%. Also, its trailing-12-month ROA, ROC, and gross profit margin are negative 21.4%, 10.2%, and 83.6%, respectively. Moreover, its trailing-12-month negative EBIT margin of 228.5% compares to its industry average of 9%.

Premium Valuation

In terms of forward Price/Cash Flow, the stock is currently trading at 22.07x, 175.1% higher than the industry average of 8.02x. Also, its forward EV/Sales of 3.17x is 206.8% higher than the industry average of 1.03x. Moreover, NCLH’s forward Price/Book of 2.73x is 22.8% higher than the industry average of 2.22x.

POWR Ratings Reflect Bleak Outlook

NCLH has an overall F rating, which equates to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated 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 for Stability and a D for Value and Quality. The stock beta of 2.48 justifies the Stability grade. The company’s higher-than-industry valuation is in sync with the Value grade. In addition, its poor profitability is consistent with the Quality grade.

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

Beyond what I’ve stated above, you can view NCLH ratings for Growth, Momentum, and Sentiment here.

Bottom Line

Despite being one of the world’s leading cruise lines, NCLH’s near-term prospects are grim because the firm is still recovering from pandemic-related disruptions. Analysts expect its EPS to decline at the rate of 24.1% per annum over the next five years. Furthermore, the stock is currently trading below its 50-day and 200-day moving averages of $16.64 and $21.09, respectively, indicating a bearish sentiment. So, given its lofty valuation, we think the stock is best avoided.

NCLH shares were trading at $12.67 per share on Friday morning, up $1.21 (+10.56%). Year-to-date, NCLH has declined -38.91%, versus a -17.96% 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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