Is Norwegian Cruise Line a Hidden Bargain After Recent Share Price Drop?

• Wondering if Norwegian Cruise Line Holdings is a hidden bargain or if the market is onto something? You are not alone in wanting to know what is really driving its current price.
• The stock has seen some turbulence lately, dropping 4.5% over the past week and 7.3% in the last month. It has a year-to-date return of -13.5% and is down 9.9% over the past year, despite posting strong 3-year and 5-year gains of over 32%.
• Recently, headlines have focused on shifting travel trends and ongoing discussions around demand and operational costs in the cruise industry. These stories help explain why shares might be reacting strongly, whether in anticipation of recovery or due to changing perceptions of long-term risk.
• Right now, Norwegian Cruise Line Holdings notches a robust 6 out of 6 on our valuation checks, suggesting it could be trading below its fair value. Let us dig into the different ways investors look at valuation and explore what may be the smartest approach of all by the end of the article.

Find out why Norwegian Cruise Line Holdings's -9.9% return over the last year is lagging behind its peers.

Approach 1: Norwegian Cruise Line Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and then discounting them back to the present using a required rate of return. This gives investors a more fundamental view of what the company may be worth, based on the actual money it can generate over time.

For Norwegian Cruise Line Holdings, the most recent full-year Free Cash Flow (FCF) is negative at about $730 million. However, analyst expectations and further projections suggest a rapid turnaround. By 2029, Norwegian's annual FCF is forecast to climb to approximately $1.97 billion, with much of this future growth coming from robust operational improvements and efficiency gains. It is important to note that forecasts beyond five years are extrapolations, so there is more uncertainty here than in near-term estimates, but they still provide valuable directional insight.

Based on this model, Norwegian's estimated intrinsic value comes to $44.91 per share. Comparing this to its current market price, the DCF analysis suggests that shares are trading at a discount of roughly 50.1%. This signals that, if the projections hold true, Norwegian Cruise Line Holdings could be significantly undervalued by the market today.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Norwegian Cruise Line Holdings is undervalued by 50.1%. Track this in your watchlist or portfolio, or discover 832 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Norwegian Cruise Line Holdings.

Approach 2: Norwegian Cruise Line Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a trusted way to evaluate whether a profitable company’s shares are reasonably priced. It shows how much investors are currently willing to pay for each dollar of earnings, and is particularly useful for businesses like Norwegian Cruise Line Holdings with a track record of positive earnings.

Generally, higher growth prospects and lower risks justify a higher PE ratio, while companies facing uncertainty or slowing growth tend to trade at lower multiples. What is considered “fair” is largely influenced by both future expectations and the industry backdrop.

Norwegian Cruise Line Holdings currently trades at a PE ratio of 14.2x. This is well below the Hospitality industry average of 23.3x and also less than the peer average of 45.0x, suggesting shares may be priced conservatively compared to rivals and the broader sector.

To account for company-specific details, Simply Wall St calculates a proprietary “Fair Ratio,” which is an ideal PE multiple based on a blend of earnings growth, risk, profit margins, market cap, and the unique characteristics of Norwegian’s industry. This tailored approach is more insightful than simply comparing to industry or peer averages because it factors in the nuances that can justify a higher or lower multiple.

Norwegian’s Fair PE Ratio is calculated at 37.6x. With the current PE at 14.2x, this represents a sizeable discount. This suggests the market is assigning a much lower valuation than what the company’s fundamentals and growth potential warrant, pointing to Norwegian Cruise Line Holdings being undervalued through this lens.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Norwegian Cruise Line Holdings Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. A Narrative is the story you believe about a company’s future, how you expect its revenue, margins, and fair value to evolve, based on real world events and your own insights, rather than just raw numbers.

Narratives bridge the gap between the company’s story, your financial forecast, and an estimated fair value. They are easy to use on Simply Wall St’s Community page, where millions of investors share and refine their perspective with each update, making Narratives both accessible and dynamic.

This means your Narrative automatically refreshes as new information like financial results or industry news comes in, helping you track how the latest developments impact your investment view over time.

With Narratives, you can quickly see whether Norwegian Cruise Line Holdings is a “Buy” or “Sell” for you by comparing your Fair Value with the current market price, which gives you a living, breathing reason behind every investment decision.

For example, one investor may believe Norwegian’s transformation of Great Stirrup Cay and upgraded luxury fleet could justify a bullish fair value as high as $40.00 per share, while another may highlight risks like debt and shifting travel mixes to arrive at a more cautious target of $23.00. This empowers each investor to act confidently on their unique perspective.

Do you think there's more to the story for Norwegian Cruise Line Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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