Setting Sail on the High Seas

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Three of the biggest cruise liners in the world just happen to be publicly traded, and they’re awaiting your investment. Should you do it though? Well, with the decreasing unemployment rate, salaries back on the rise, and other positive signs out there in the economy, the average consumer may be in the mood to splurge on a nice cruise, and that would translate to increased earnings and more capital gains for you!

The biggest cruise company out there right now is Carnival (NYSE: CCL). You’ve no doubt seen the endless number of their commercials on TV, and if you live by a major port then there’s a slight chance that you’ve seen one of these ships around. Royal Caribbean (NYSE: RCL) is also right up there with Carnival. If you have ever thought about a cruise, chances are you’ve checked out these two companies. Norwegian Cruise Line (NASDAQ: NCLH) is a lot smaller compared to Carnival and Royal Caribbean, but I think that they may still end up piquing some investor interest.

Carnival

As mentioned, Carnival is the largest of the three stocks. The Carnival market cap at the time of writing is right around the $31.5 billion mark, not too shabby! With them being the biggest, they have to offer cruises around the world, and they do just that. Carnival will let you set sail on a cruise around Canada, Russia, through the Panama Canal, or even a cruise to nowhere. That’s right, some people love sailing so much they hop on one of these boats and go nowhere!

It has to be asked, how’s business at Carnival? I’d definitely say that it has had a bleak past few years, but the future is no doubt looking up. Over the last five years EPS has failed to grow but rather has been showing losses at an annual rate of -8.97%. Revenues over that time period have been increasing, a positive sign for the cruise liner. One thing to make note of about this company is that analysts are calling for some pretty good growth over the next two fiscal years at a rate of around 25% per year. Talk about fighting back!

The market isn’t dumb, though; it already has the growth factored in. The P/E ratio at Carnival is very high at 29.6, which makes it hard to capture any potential short term gains. This stock is definitely for the long haul, something that’s not too bad considering that the company has a 2.6% dividend yield, relatively low debt, a gross margin above 30% and a five-year pre-tax margin of 12.8%.

Royal Caribbean

Royal Caribbean’s growth numbers look almost exactly like those at Carnival. The company has seen some down years over the past few years and they are most definitely planning a fight back over the coming couple of years. EPS growth is once again looking likely to be around 25% per year over the next two fiscal years for this cruise liner that totes almost 200 destinations around the world.

Prepare to be scared now, though, because this company’s current P/E stands at an incredible 451.6. That’s big enough to scare even the craziest of investors away. It’s definitely put me off of buying it.

Could future growth really be worth 450x current earnings at Royal Caribbean? It doesn’t look like it. The ratios are looking very similar, if not worse, to those at Carnival. Royal Caribbean comes with a 1.3% dividend yield, a much higher LT debt to equity ratio of 0.76, a similar gross margin, and a lacking pre-tax margin at 7.6%. I’d consider leaving Royal Caribbean at home.

Norwegian Cruise Lines

THEY JUST WENT PUBLIC! So give this company a big three cheers. Not only that, they’ll also be making use of a multi-million dollar facility right here in Texas. The Bayport Terminal located in the Houston suburbs, right between Houston and Galveston will become another home to this expanding cruise liner.

With this company being brand new to the market, it is a little difficult to properly gauge them. What we can look at is their incredibly low P/E ratio compared to the other two companies in this article. Norwegian Cruise’s P/E is down at 4.62. Their market cap is only $5.6 billion. Price to book value is an incredible 0.32; this stock is looking incredibly cheap.

The gross margin is at 33% and the pre-tax margin is at 5.72%. Both of those figures are decent. The pre-tax margin is obviously lower than that of Carnival or Royal Caribbean, but I think that Norwegian definitely presents an opportunity in terms of buying.

Bottom Line

Keep an eye on Norwegian Cruise Lines. It’s priced low and it could be poised for a takeoff. They are coming to new ports and reaching more people; the Houston port alone is a 6 million person market, and that’s just the metropolitan area.

I’d stay away from Royal Caribbean, and I’d consider looking further into Carnival. Royal Caribbean is priced much too highly for my tastes. Carnival is getting up there into the unbearable zone, but future profits will bring that number down, fast.


Ash1402 has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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