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Norwegian Cruise Line Holdings Is A Buy


NCLH is down 40% in the last year.

Excess capacity, weak pricing, and geopolitical headwinds have weighed on the stock price.

These fears are overblown in the context of the long-term picture.

There is plenty of demand growth ahead in emerging markets, and the pricing environment should improve in the long-run.

Top-line growth and margin upside create the potential for major capital appreciation in NCLH at these prices.

Shares of Norwegian Cruise Line Holdings (NASDAQ:NCLH) have fallen almost 40% in the past year (Figure 1). Fears about excess capacity and weak pricing, as well as geopolitical headwinds from terrorism and Brexit have weighed on industry sentiment and battered the stock. These headwinds will persist in the short-term, but NCLH continues to report solid underlying performance, and has exposure to powerful secular tailwinds that will win out in the end. At a forward P/E of just 8.8 and a cash flow yield of 13.2%, we believe NCLH is a compelling choice for buy-and-hold investors.

Figure 1: 1-Year Price Graph


Industry pricing has come under pressure in traditional cruise ship markets such as the Caribbean and Europe due to capacity increases. NCLH generates the majority of its revenue in the Caribbean, but plans to enter emerging markets where the growth potential is much greater. The Asia-Pacific, and China in particular, will be the most attractive...