Norwegian Cruise Lines Stock Is Doing Well, But for How Long?

Stocks to sell
  • Norwegian Cruise Lines (NCLH) has come back 42% in the past month.
  • That rebound is exciting, but it may well be an overreaction.
  • The cruise industry has deeper issues than just Covid-related concerns.
Source: Nazar Skladanyi /

There’s little doubt that the pandemic is in a new stage. And that stage has sent Norwegian Cruise Lines (NYSE:NCLH) and its peers’ stocks soaring.

But before you start experiencing a “fear of missing out” (FOMO) again, take a beat.

Yes, it’s absolutely true that the kind of nightmare scenarios that NCLH stock had been dealing with since Covid-19 started are over. At least for now. Each new strain of Covid-19 is more communicable, but also less lethal, especially to people who have been vaccinated.

That has led to a surge in travel. And of course the first thing newbie investors do is start buying travel stocks like they’re vaccine stocks in 2020.

NCLH Norwegian Cruise Lines $20.68

NCLH Stock Still Has Headwinds

I hate to be the bearer of bad news to all the thawed out bulls. But there are still significant headwinds that NCLH still has to navigate before it’s clear sailing.

For example, rising fuel prices. Did you know the average cruise ship burns 80,000 gallons of fuel — a day? That’s between 30 – 50 gallons per mile. They aren’t the most fuel efficient vehicles out there.

In comparison, a large commercial airliner burns about 3,000 gallons per hour. It’s tough to compare them side by side, but airplanes don’t spend 10 – 20 days at sea, although one aircraft can travel significant distances in 10 – 20 days’ time.

The point is, where cruise ships were docked for a long time, now that they’re up and running they have to deal with huge fuel costs. That gets passed down to passengers.

An industry that once promoting bargain prices doesn’t have that luxury any longer. And if people need to fly to get on a cruise, then they pay a double penalty.

A Difference Between Trading and Investing

So, most of these people who have driven the price of NCLH stock up recently are day traders, right?

I doubt it. Most of those traders were blown out in the past six months as all the high-flying tech stocks and Gen Z Reddit traders got washed out or transferred their dented stock accounts over to crypto.

This is the wave of “bottom fishers” that think they’re buying bargains. But NCLH stock is still down 26% in the past 12 months, even after this impressive run. It lost $12.40 a share in the last quarter and it still has almost 11.5% short interest betting on more downside than upside to come.

And not only are prices going to scare away potential cruise customers. But Europe is managing a land war on its continent. Most global economies are struggling with significant inflation, fuel shortages, and a continuing supply chain crisis.

Where NCLH Stock Might Go From Here

Does that sound attractive? Pay premium prices to go places during a global economic downturn and rising inflation, where the dollar is weaker?

Maybe a Covid-19 analogy would help clear things up. We’re in that period when things started to get under control in 2021 and spring was upon us and everyone tore off their masks, only to discover that the Delta variant was now running rampant.

Masks back on. Hunker down again.

That’s about where the market is right now. The good times seem to be upon us and everyone is already buying the dip. Unfortunately, it isn’t that simple.

You may want to root for NCLH stock and its compatriots because of what it means for all of us. But just don’t buy it.

On the date of publication, GS Early did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

GS Early has been an award-winning financial writer and editor for nearly three decades, working with many of the leading financial editors and publishers during that time.

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