Norwegian Cruise Line Holdings Ltd (NCLH): The Long And Short Of It

Peer comparison

Norwegian Cruise Lines‘ peers include Royal Caribbean Cruises and Carnival Corporation (NYSE:CCL).

Royal Caribbean Cruises’ aged vessel fleet remains its biggest problem. Royal Caribbean Cruises Ltd. (NYSE:RCL), like its peers, is always on the outlook for opportunities to optimize its fleet, including ordering new ships and selling old ones. In April 2013, it introduced its new generation of cruise ships – the Quantum class, which will come onboard in late 2014 and early 2015. Despite this, management expects the proportion of aged vessels above 20 years old to increase to 23% by 2016.

Notwithstanding its status as the largest cruise company in the world, Carnival’s reputation has been affected by recent power disruptions and passenger accidents. Investors will be advised to adopt a wait-and-see approach.  If Carnival gets its house in order again by rebuilding its safety track record, it will likely catch up with Norwegian Cruise Lines in terms of ROA as it leverages its economies of scale.

Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) is the most undervalued of the three, with a PEG of 0.76; meanwhile Royal Caribbean Cruises and Carnival are valued at PEG ratios of 0.88 and 1.24 respectively. As mentioned above, Norwegian Cruise Lines also has the highest ROA of the peer group at 3.9%. Royal Caribbean Cruises and Carnival Corporation (NYSE:CCL) pale in comparison, delivering ROAs of 2.6% and 3.0%, respectively.

Conclusion

Norwegian Cruise Line Holdings Ltd (NASDAQ:NCLH) should be able to sustain its industry-leading ROAs going forward, as it continues to maintain a young fleet with its new builds. It is not common to find a low-PEG, high-ROA stock during a peer comparison exercise, so investors should consider this stock.

The article Ignore the Noise and Cruise Ahead With This Stock originally appeared on Fool.com and is written by Mark Lin.

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