Are Cruise Line Stocks Finally Too Cheap to Ignore?

There have been plenty of industries taking big hits this month before Monday's recovery on a whiff of hope for an endgame to the escalating conflict in Iran. Cruise line stocks have been particularly hard hit, taking on water from two shots related to the war.

Shares of the country's three largest operators -- Royal Caribbean (NYSE: RCL), Carnival (NYSE: CCL), and Norwegian Cruise Line (NYSE: NCLH) -- had fallen 15%, 24%, and 24%, respectively, in March before Monday's roughly 6% spike for all three. Leading river cruise line Viking Holdings (NYSE: VIK) was down 13% in March before its own 6% ascent to kick off the new trading week.

Image source: Getty Images.

The hits are real. Oil prices have surged as attacks on energy sites in the Gulf picked up earlier this month. Oil tanker challenges through the Strait of Hormuz have raised the costs and risks of transport. Fuel is one of the cruise lines' highest variable costs.

There's also the demand side of the equation. Cruise lines have thrived in recent years, with booming interest in watery getaways. However, with a global conflict involving attacks at sea, will passengers start to rethink their 2026 bookings?

Crashing this year's wave season

This is a seasonally significant time for the cruise line industry. It's not because of the sailing volume. The first quarter is historically the market's sleepiest period. However, it's also what cruise lines call wave season. The first three months of the calendar year are when the major cruise lines offer their most ambitious promotions. They want to book their remaining berths for the balance of 2026 and get a strong jump on 2027 reservations.

It wouldn't shock anyone if cruise lines wind up complaining about a sluggish end to this year's wave season. It's not just about safety concerns or the rising costs of completing a voyage. With interest rates rising this month, there are legitimate economic concerns that could prompt customer cancellations. The industry could get squeezed by cost constraints on both ends.

Lost in a wave of pessimism, you might still be surprised to find that buying a basket of cruise line stocks a year ago hasn't fared as badly as the recent performance. Three of the four cruise lines have actually beaten the market over the past year. Norwegian Cruise Line -- the smallest of the three traditional operators -- is the only one posting negative returns.

RCL data by YCharts.

Uncharted waters

The worst isn't necessarily over. Viking initially nixed its March sailings through Egypt earlier this month. After reassessing the situation, it resumed operations in the region a couple of days later. However, the luxury line has resorted to rare discounts to fill near-term cruise bookings.

The upcoming earnings season will be critical. In the meantime, the stocks are trading at some surprisingly low forward price-to-earnings (P/E) ratios.

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

The best play isn't necessarily the one with the lowest multiple. It's no coincidence that the returns over the past year line up with the market premium they are currently commanding. Viking is trouncing the market and its larger peers. It operates in a specialized niche with a loyal and wealthy fan base. It has historically grown faster than the others.

Zooming out to the three giants of ocean getaways, Royal Caribbean has earned the premium over its two rivals. It consistently cranks out healthier margins and growth. It was the first to return to profitability after the pandemic and the first to reinstate its dividend.

Carnival stock could potentially be the best value right now. As the largest player by revenue and passenger capacity, it's also the most vulnerable to an economic downturn. However, it was also comfortable enough in sizing up its near-term prospects to recently bring back its dividend following Royal Caribbean.

This leaves us with NCL. It could be a value trap. While profit targets for Viking and Royal Caribbean have been revised higher as 2026 plays out -- and Carnival held steady -- analysts have lowered their expectations for the smallest of the three ocean cruise operators. This doesn't mean that NCL isn't a bargain. It's just a warning not to assume that the one with the lowest multiple will be the best performer.

There's an ocean of investing opportunities out there. If you can stomach the potential seasickness in the new normal, you might want to take a closer look.

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.