This Is Why You Don't Buy the Cheapest Cruise Line Stock

Shares of Norwegian Cruise Line (NYSE: NCLH) sank 9% on Monday, after the company posted disappointing financial results. Investors who flocked to the country's third largest cruise line, on the premise that it was the cheapest of the publicly traded players, are being reminded that sometimes you get what you pay for.

Norwegian Cruise Line -- or NCL, for short -- posted mixed financial results through the first three months of this year. Revenue rose 10% to $2.33 billion. That was just shy of the 11% year-over-year increase that analysts were forecasting and rival Royal Caribbean (NYSE: RCL) achieved for the quarter.

Image source: Getty Images.

Taking a dive

The waters initially get more inviting once you dive beneath the surface. NCL's adjusted net income more than doubled to $108 million or $0.23 a share, well ahead of the $0.14 that analysts were targeting. It's NCL's biggest earnings beat in more than a year.

Unfortunately, a cruise ship's journey isn't about where it's been as much as where it's going. For NCL, there are some serious headwinds looming. The cruise line operator is being squeezed on both ends. Rising fuel costs and the upheaval in the Middle East are softening passenger demand while boosting its operating costs.

NCL is now bracing investors to expect adjusted earnings between $1.45 and $1.79 per share. Just two months ago, NCL was eyeing an adjusted profit of $2.38 a share for 2026. At the time, it was also modeling flat net yields, a key metric for the industry that is basically net revenue generated per available passenger cruise day, after backing out a couple of variable cost items. Now it's forecasting a 3% to 5% decline in net yields.

You would think the entire industry is struggling if one of its largest players sounded an alarm, but that's not necessarily the case. Larger rival Royal Caribbean announced results for the same three-month period last week. Royal Caribbean also lowered its 2026 adjusted earnings guidance, but the midpoint of that outlook declined just 2% to $17.50 per share. NCL's guidance was pared back a whopping 32%. Adding insult to NCL's injury, Royal Caribbean is still projecting net yields to climb 2% to 3% this year. Is it any wonder NCL is the worst performer among the country's four largest operators?

NCLH data by YCharts.

NCL is on its own right now, as the lone cruise line to trade underwater over the past year. Viking Holdings (NYSE: VIK) is the top performer, with an 87% jump. The well-regarded leader in river cruises has the luxury of catering to an affluent and older audience that is more resistant to economic downturns. Carnival (NYSE: CCL) and Royal Caribbean are splitting the difference with double-digit gains over the past year.

You won't find NCL topping the list of the best travel stocks, and that was even before Monday's doozy of an earnings report. Just size up where the four stocks are trading from the perspective of refreshingly reasonable forward price-to-earnings (P/E) ratios.

Data source: Yahoo! Finance. P/E = price-to-earnings.

Viking has earned its right to trade at a premium multiple to its peers. It has historically grown faster, with strong brand loyalty. The other cruise line stocks are cheap. NCL may check off the box as the cheapest, but there are two important takeaways I want to close with here.

For starters, analysts will be slashing their NCL profit targets lower in the coming days, pushing the multiples higher. Based on the new midpoint of its revised guidance, NCL's forward earnings multiple is 11, not 9. The final point is that when you're buying the cheapest stock in an industry, you often get a company that's cheap for a reason. NCL was the cheapest stock a year ago, too. The earlier chart shows you how that worked out.

There's an argument to be made that NCL is a potential turnaround story or even an eventual acquisition target, likely by private equity rather than a publicly traded competitor. Be careful if you go that route. Winners keep winning. Swimmers keep swimming. Once again, NCL is just treading water.

Rick Munarriz has positions in Royal Caribbean Cruises and Viking. The Motley Fool has positions in and recommends Viking. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.