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With many industries having to revamp their business model due to COVID-19, How will two titans in the Cruise Line industry tackle the pandemic? Will Royal Caribbean Cruises (RCL) and Norwegian Cruise Line Holdings (NCLH) return to their success before the pandemic, or are they permanently damaged?
This is Sailesh Tirupasur. I'm a part of Stock Card's summer internship program in 2020, and this post is a part of my Stock Battle series. I don't own these two stocks, and my goal here is to study them to decide whether to invest or not.
Stock research and analysis
Cruise Line stocks are in an extremely volatile position at the moment due to difficulties being presented by the pandemic. Royal Caribbean and Norwegian Cruise Line stocks, the world's second and third largest cruise companies, are down around 6% and 5% today. However, many experts are saying that cruise stocks could be an interesting long term play since their stock price has fallen so low.
Before COVID-19, the cruise industry was enjoying some of the most robust industry growth rates outside of the technology sector. According to a graph from cruising industry trade group cruising.org, the number of global ocean cruise passengers has grown by an average of 5.36% annually since 2009. Industry group Cruise Lines International Association had even projected an acceleration to 6.7% growth in 2020 before the pandemic. Some investors are clinging to the hope that once normalcy returns, the cruise line industry will see the return of these high growth numbers, while other investors are concerned with just how much damage COVID-19 could happen due to the industry.
Health authorities have banned ships with more than 250 passengers from sailing from the U.S., the sector's largest market. Royal Caribbean also has built up a numerous amount of debt over the years due to acquiring other smaller cruise lines over the years. According to the quarterly report, Royal Caribbean has around 12 billion dollars in debt while also not being able to resume business until September, most likely. Norwegian Cruise Line, on the other hand, has 6 billion in debt and is the smaller of the two companies.
My pick of the day is neither of the two stocks. However, I would watch Norwegian Cruise Line Holdings for now. It has a lower debt as well as an extremely low price point compared to Royal Caribbean Cruises (RCL). However, investing in both companies seems to be a bit of a gamble right now because the impact of the COivd-19 pandemic is still in full force.