After several difficult years both during and after the Covid-19 pandemic, the cruise line industry is finally bouncing back. Cruise operators are reporting record bookings for 2024 as travel demand comes back to pre-pandemic levels. According to the Cruise Lines International Association (CLIA), a record 35.7 million people are expected to cruise this year, up from 31.5 million in 2023, and 6% more than the number of passengers that sailed in 2019 before the industry was crippled by the pandemic. With continuous growth on the horizon, now is the right time to buy currently undervalued cruise stocks.
During recent earnings calls, cruise line companies have reported that they are seeing record bookings for this year and into 2025 as travel demand continues to grow. Capacity is now becoming an issue with many cruise ships booked solid through mid-2025, a good problem for the cruise operators to have. That’s in comparison to the pandemic years when ships sat idle in ports around the world and the industry lost a collective $32 billion. Here are the three most undervalued cruise stocks to buy in May 2024.
Viking Holdings (VIK)
Swiss cruise operator Viking Holdings (NYSE:VIK) just went public on May 1. Gauging its valuation is a little tricky at the outset and more will be known when the company issues its first financial results as a publicly traded company. But at the outset, the initial public offering (IPO) looks to have been a success, rising 10% since its debut on the New York Stock Exchange. Viking Holdings has been in business since 1997 and is known for its European river cruises. Unlike many newly listed companies, it has a history of profitability, though it did suffer a loss in 2023.
Viking’s market valuation currently stands at just over $11 billion, with more than 430 million shares outstanding. The company raised $1.54 billion through its stock offering, the most among American IPOs so far this year. Viking Holdings today generates more than $4 billion in annual revenues and employs about 10,000 people worldwide. Analysts are bullish at the outset, saying Viking’s stock should perform well given the company’s affluent clientele and growth potential. At $29 a share, VIK stock is attainable.
Royal Caribbean Cruises (RCL)
Royal Caribbean Cruises (NYSE:RCL) is on an upswing, with its stock having gained 82% in the last 12 months, including a 19% increase so far in 2024. RCL stock has now come all the way back from the doldrums of the Covid-19 crisis, with its share price trading 6% above pre-pandemic levels. Among the cruise line operators, Royal Caribbean has been a top performer as its booking and financial results bounce back strongly. Yet despite the recovery, RCL stock still trades at a comparatively low valuation.
Currently, RCL stock is trading at just 18 times future earnings estimates. It doesn’t pay a dividend, but there looks to still be room for the share price to run higher. The 12 analysts offering a rating on Royal Caribbean rate the stock a “strong buy,” with an average price target that is 5.5% above current levels. The cruise operator just released financial results that included earnings per share (EPS) of $1.77 versus consensus estimates of $1.31. Revenue also beat Wall Street forecasts. Earnings are expected to continue growing.
Norwegian Cruise Line (NCLH)
For a buy-the-dip candidate, look to Norwegian Cruise Line (NYSE:NCLH). The company’s stock is down 11% on the year and trading not far from its 52-week low. The share price is also trading 72% lower than where it was in 2019 before Covid-19. Currently trading at 24 times future earnings estimates, the stock looks to have a reasonable valuation that shouldn’t keep investors away.
Like a lot of cruise line operators, Norwegian has struggled with excessive debt taken on during the pandemic. But NCLH is probably top on the list of undervalued cruise stocks as it has the most room to improve.
At the end of 2023, Norwegian’s debt stood at $13.7 billion. That was after the company repaid $1.9 billion of debt throughout last year. Clearly, the company needs to make more progress on its debt. That said, Norwegian Cruise Line has been reporting financial results that show improvement in several key areas. These include an occupancy rate on its ships of 102%, revenue that is 32% above pre-pandemic levels, and expanding operating margins due to aggressive cost controls.
On the date of publication, Joel Baglole did not hold (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.