Norwegian Cruise Line Holdings Ltd. (NCLH) booking revenue soared in its second quarter ended June 30, 2022, as people snapped out of Covid worries. Its passenger ticket revenue came in at $793.89 million, up 50,019.4% year-over-year. However, amid record-high inflation and recession fears, the company is struggling to achieve optimal productivity.

The company had earlier forecasted a loss for the third quarter and revenue below estimates as occupancy rates remained stubbornly below pre-pandemic levels. NCLH projected occupancy in the low 80% range and a net loss for the third quarter while blaming the surging labor and fuel costs.

"2022 has been a very lumpy year. It will continue to be a bit lumpy for the second half given where our load factors (occupancy percentage) are expected to be," Chief Financial Officer Mark Kempa said.

NCLH has gained 18.8% over the past month to close the last trading session at $15.90. However, it has lost 23.3% year-to-date and 38.6% over the past year.

Here is what could shape NCLH's performance in the near term:

Rising Debt and Expenses

NCLH's total revenue came in at $1.19 billion for the second quarter that ended June 30, 2022, up 27,079.1% year-over-year. However, its total cruise operating expense came in at $1.07 billion, up 329.8% year-over-year. Its long-term debt came in at $12.24 billion for the period ended June 30, 2022, compared to $11.57 billion for the period ended December 31, 2021.

Stretched Valuation

NCLH's forward EV/Sales of 3.91x is 262.7% higher than the industry average of 1.08x. Its forward Price/Sales of 1.41x is 71.1% higher than the industry average of 0.82x. Also, its forward Price/Book of 12.05x is 383% higher than the industry average of 2.49x.

Poor Margins

NCLH's trailing-12-month gross profit margin of negative 26.24% is lower than the industry average of 36.42%. Its negative EBITDA and net income margins of 71.69% and 166.44% are lower than the industry averages of 11.08% and 5.59%, respectively.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of negative 169.25%, 9.91%, and 20.46%, compared with the industry averages of 14.76%, 6.79%, and 5.21%, respectively.

POWR Ratings Reflect Bleak Prospects

NCLH has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

NCLH has a D grade for Value and Quality, consistent with its higher-than-industry valuation multiples and lower-than-industry profitability margins, respectively.

It has an F grade for Stability, in sync with its beta of 2.33.

In the 4-stock Travel – Cruises industry, NCLH is ranked last. The industry is rated F.

Click here for the additional POWR Ratings for NCLH (Growth, Momentum, and Sentiment).

View all the top stocks in the Travel – Cruises industry here.

Bottom Line

The company is yet to achieve a pre-pandemic occupancy level, which might take a while, considering the uncertain economic backdrop. NCLH's EPS is expected to decrease by 165.1% per annum for the next five years. Moreover, it missed EPS estimates in all four trailing quarters. Given the stock's stretched valuations and negative profitability, NCLH might be best avoided now.

NCLH shares were trading at $16.10 per share on Thursday morning, up $0.20 (+1.26%). Year-to-date, NCLH has declined -22.37%, versus a -18.88% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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