Did You Know That Viking Holdings Has Doubled Over the Past Year?

It doesn't seem right. All three major cruise line stocks have been lagging the market over the past year, with gains of 4% to 21%. Then you have Viking Holdings (NYSE: VIK), which has soared 108% in that time. The models are different.

Viking is dominant in its niche, commanding more than half of the river cruise market for North American outbound passengers. It's still a much smaller business than the larger ocean liners that most consumers and investors associate with cruising. Viking's trailing revenue of $6.7 billion is just 25%, 36%, and 67% of what Carnival Corp., Royal Caribbean, and Norwegian Cruise Line have generated, respectively.

One more startling morsel before we dive deeper into the discrepancy: Viking commands a larger market cap than all but one of the three larger cruise line operators. Despite all of this, Viking might still be the better investment in the open waters of cruising. Let's go for a ride.

Image source: Getty Images.

A river runs through it

Let's tackle the market cap bombshell first. Viking's market cap of $41 billion is greater than Carnival's at $39 billion and Norwegian's at $8 billion, but this doesn't mean the river-cruising revenue laggard is overvalued. Compared to the three more conventional ocean riders, Viking has a cleaner balance sheet. It has just a marginal bit more debt than cash on its balance sheet.

The leveraged difference becomes clear if we shift from market cap to enterprise value. Viking's $43 billion in enterprise value is substantially lower than Carnival's stock at $63 billion. Viking still commands a premium to Norwegian, with an enterprise value of $24 billion, but there are some good reasons Norwegian is trailing the market.

Back in the water, Viking has earned its premium over its better-known peers. Viking's revenue in its latest quarter rose 18%. Royal Caribbean, Carnival, and Norwegian increased their top lines between 6% and 10%, roughly half of Viking's pace.

Another selling point in Viking's favor is its differentiated product and the very different clientele it attracts. Viking hits exotic river destinations on small ships with fewer than 200 passengers. Unlike the thousands of passengers on more traditional cruise line itineraries, Viking customers pay substantially more for the exclusive experience.

Viking passengers are affluent and skew older. This is a good thing, as well-off retirees tend to be less impacted by the mood swings of the economy than the families and wider range of net worths targeted by the more traditional operators. This was on full display earlier this month, when Norwegian and Viking reported just a few days apart.

Norwegian slashed its earnings guidance, warning that net yields would be negative amid rising costs and iffy consumer demand. Viking countered with another blowout performance. A whopping 92% of its 2026 capacity has already been booked, with 38% of next year's vacancies already spoken for. This is in line and slightly ahead of where it was a year earlier on that two-year metric. Folks also aren't flinching on paying more to offset the rising costs of these unique lifetime experiences.

Steady as she goes

Even the announced retirement of founder and CEO Torstein Hagen -- at the helm for almost 30 years -- earlier this month didn't rock the boat. Viking has earned its place as an elite luxury brand stock, complete with the fierce customer loyalty and unsinkable economic nature that comes with the spoils of victory.

Like its product, Viking does trade at a premium -- but it's a reasonable markup. Investors are buying Viking today for 21 times next year's earnings. The three ocean-favoring cruise lines are fetching lower multiples of 9 to 14 relative to analyst targets for 2027, but Viking deserves to be valued on a separate river body of work.

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.