Norwegian Cruise Line Holdings Ltd.'s (NYSE:NCLH) 42% Price Boost Is Out Of Tune With Revenues

Norwegian Cruise Line Holdings Ltd. (NYSE:NCLH) shareholders would be excited to see that the share price has had a great month, posting a 42% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 50% in the last year.

Although its price has surged higher, it's still not a stretch to say that Norwegian Cruise Line Holdings' price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" compared to the Hospitality industry in the United States, where the median P/S ratio is around 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Norwegian Cruise Line Holdings

How Norwegian Cruise Line Holdings Has Been Performing

Recent times have been advantageous for Norwegian Cruise Line Holdings as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Norwegian Cruise Line Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Norwegian Cruise Line Holdings?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Norwegian Cruise Line Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 112% gain to the company's top line. The latest three year period has also seen an excellent 194% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 10% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 13% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Norwegian Cruise Line Holdings is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Norwegian Cruise Line Holdings' P/S?

Norwegian Cruise Line Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given that Norwegian Cruise Line Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Norwegian Cruise Line Holdings with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.