Is Norwegian Cruise Line Holdings Ltd (NCLH) Set to Underperform? Analyzing the Factors Limiting Growth

Understanding the Barriers to Outperformance for Norwegian Cruise Line Holdings Ltd

Long-established in the Travel & Leisure industry, Norwegian Cruise Line Holdings Ltd (NCLH, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 0.13%, juxtaposed with a three-month change of -12.3%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Norwegian Cruise Line Holdings Ltd.

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What Is the GF Score?

The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.

Based on the above method, GuruFocus assigned Norwegian Cruise Line Holdings Ltd a GF Score of 60 out of 100, which signals poor future outperformance potential.

Understanding Norwegian Cruise Line Holdings Ltd's Business

Norwegian Cruise Line Holdings Ltd, with a market cap of $6.32 billion and sales of $8.08 billion, operates as the world's third-largest cruise company by berths, managing over 66,000 across its 31 ships. These ships sail under three distinct brands: Norwegian, Oceania, and Regent Seven Seas, offering a mix of freestyle and luxury cruising experiences. As of May 2022, the company had successfully redeployed its entire fleet and is looking to expand its capacity with six new passenger vessels on order through 2028, representing 16,500 incremental berths. This expansion is part of Norwegian's strategy to grow its global brand presence, with itineraries that span approximately 700 destinations worldwide.

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Financial Strength Breakdown

Norwegian Cruise Line Holdings Ltd's financial strength indicators present some concerning insights about the company's balance sheet health. With an interest coverage ratio of 0.74, it is positioned worse than 89.39% of 594 companies in the Travel & Leisure industry. This ratio, which is significantly below the preferred benchmark set by Benjamin Graham, highlights potential challenges the company might face when handling its interest expenses on outstanding debt.

The company's Altman Z-Score is just -0.03, indicating a high risk of financial distress in the near future. Moreover, the low cash-to-debt ratio at 0.05 and a debt-to-equity ratio of 31.63, which is worse than 99.57% of companies in the industry, suggest an over-reliance on borrowing. The company's debt-to-Ebitda ratio at 10.18 further exacerbates the concern, surpassing the warning level suggested by Joel Tillinghast.

Growth Prospects

A lack of significant growth is another area where Norwegian Cruise Line Holdings Ltd seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by an average of 27.2% per year over the past three years, which is worse than 87.39% of 769 companies in the Travel & Leisure industry. This decline in revenue is a red flag in a market that demands constant innovation and growth.

Moreover, Norwegian Cruise Line Holdings Ltd's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.

Next Steps

Considering Norwegian Cruise Line Holdings Ltd's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. Investors should be cautious and may want to look for companies with stronger financial health, more robust growth prospects, and better valuations. For those seeking to make informed investment decisions, GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure