Is Norwegian Cruise Line Stock Poised To Rise Further?

Norwegian Cruise Line (NYSE: NCLH), the smallest of the big three cruising companies, saw its stock gain about 22% over the last month, trading at levels of around $29 per share. This outperformed the S&P 500 which remained almost flat over the same period, as investors hope that the company’s ships will be able to set sail in the near future, with Covid-19 cases on the decline in the U.S. and the vaccination drive gaining momentum. This has helped travel and leisure stocks, as investors expect business to pick up in the coming quarters. However, the stock fell by over 2% over the last week, after the company indicated that it would be raising additional cash via a stock offering. So is Norwegian Cruise Line stock poised to rally further, or could it decline? NCLH stock has a 56% chance of a rise over the next month (21 days) after declining 2.4% in the last five days, based on our machine learning analysis of trends in the stock price over the last five years. See our analysis Norwegian Cruise Line Stock Chances of Rise for more details.

That said, the longer-term outlook for the company remains mixed, in our view. Norwegian announced that it had extended the suspension of voyages through the end of May 2021 and although Covid cases are on the decline, it’s quite likely that activity will remain subdued for the rest of the year even after the company resumes operations. Booking trends have also been mixed, with reservations for the second half of 2021 apparently remaining below historical levels, although early trends for 2022 look strong, per the company. Now, although Norwegian has adequate liquidity (over $3 billion as of the end of December) to fund its cash burn ($190 million per month as of Q4) it’s not clear that the company will be able to generate sufficient returns for shareholders in the long-run due to high interest costs. Norwegian has spent the better part of the last year raising funds via debt and equity issuances, with its debt load standing at about $11.8 billion at the end of Q4, up from about $6.8 billion a year ago. The higher interest costs are likely to weigh on the company’s profitability going forward.

Now while cruise stocks have moved considerably over the last year, 2020 has also created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how the stock valuation for Northrop Grumman vs. Atlas Air Worldwide Holdings shows a disconnect with their relative operational growth. You can find many such discontinuous pairs here.

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