Norwegian Cruise Line Stock Presents an Enticing Buy, But it Is Still too Risky

  • Norwegian Cruise Line (NCLH) stock is still too risky to embrace fully.
  • It is tempting to buy apparent bottoms prematurely.
  • Investors need to temper the enthusiasm for at least a few weeks.
NCLH stock - Norwegian Cruise Line Stock Presents an Enticing Buy, But it Is Still too Risky

Source: Nazar Skladanyi / Shutterstock

With all the volatility in the equity markets, the behavior of investors has been consistent. Unfortunately, the prevailing theme is one of apprehension. For a multitude of reasons, the macroeconomic conditions are under fire. The most serious is the human threat from the war in Ukraine. Meanwhile, there is immediate economic danger from the tight monetary policy. This is crimping stocks, especially ones in fragile industries, like Norwegian Cruise Line (NYSE:NCLH). Investors need to be vigilant when contemplating an investment in NCLH stock.

Don’t get me wrong, the cruising industry has its die-hard fans. Traffic is coming back, but they are still well below the pre-pandemic levels. The harsh reality of 2020 took its toll to a very heavy degree on the cruise industry. Even before Covid-19, they had mini versions of outbreak headlines, but nothing was this serious. Now, they are finally ramping back up to aim for normal operations. There is even new life in the industry from Virgin Voyages.

The fundamentals are still too murky to matter much today. They were dealt a blow that almost killed the industry. Only through miracle efforts were they able to survive it. Last year, Norwegian had negative $2.5 billion cash from operations. Clearly that cannot continue for too long. Revenues were also down 50% even from the pandemic year. Over the last 12 months, they are finally showing some signs of life.

Ticker Company Price
NCLH Norwegian Cruise Line Holdings Ltd. $15.82

NCLH Stock Has More Headwinds Than Just its Own

Norwegian Cruise Line (NCLH) Stock Showing Potential Pitfalls Below
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Source: Charts by TrendSpider

Unfortunately, basically all stocks are struggling from a sentiment crisis on Wall Street. NCLH stock has to contend with that while it is attempting to find its own footing. Management did great surviving the hideous test of the last two years. But there is no real guarantee that the stock won’t revisit pandemic lows.

The immediate threat to NCLH stock is under 10%. But if the indices stumble, that could extend another 15% below that. While this is not my forecast, it is a real enough scenario that the bulls need to acknowledge. There is support near $13 per share, but losing that opens a new trap door. There is also an annoying little gap all the way to $11.40 per share. Not all gaps fill, but this one is too close to ignore.

The cruising fans, even ones in my family, have stuck with them. They are venturing back out, but not yet in full force. Global cruising statistics are still meek compared to years prior to 2020. According to some sources, these are levels that date back more than 15 years. Traffic is coming back, but is still about half of 2019 levels.

Until we see sharp spikes with those, NCLH will continue to struggle to rebuild its business slowly. Arguably, they will come out stronger. But for the next few weeks, I would be cautious about going all in.

Be Safe, But Not Bearish

Like cruising fans, NCLH stock fans have also tried their best. They valiantly rallied it up 385% from the March 2020 bottoms. They have since given back more than half, but it shows the propensity to invest. I bet that they won’t need much to jump back in, so I would not short the stock. My purpose today is to raise concern and elicit caution. I don’t mean to kick a horse when it’s down.

Even though I am uncertain about NCLH’s bottom, I know to not bet against it. For now, investors must leave room for doubt. For as long as the indices are making consistent lower-highs and lower-lows, the bears are in charge. We should also assume that the default behavior is to sell rallies. This shall remain in effect for the next few weeks, or until we see more reports.

On the date of publication, Nicolas Chahine 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 InvestorPlace.com Publishing Guidelines.

Nicolas Chahine is the managing director of SellSpreads.com.


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