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Why Norwegian Cruise Line's Stock Plunged 10% Today

By Travis Hoium - Feb 24, 2020 at 4:15PM

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The cruise line business could be in for a tough year in 2020.

What happened 

Shares of Norwegian Cruise Line Holdings Ltd. (NCLH -10.57%) fell as much as 10.2% in trading Monday as the market's concern over coronavirus deepened. At 3:45 p.m. EST shares were still down 9.2% and showed no sign of recovering today. 

So what

Just last week, Norwegian Cruise Line said it had cancelled 40 voyages in Asia and that the coronavirus would take $0.75 from expected earnings per share in 2020, which were expected to be $5.40 to $5.60 per share. The State Department urged citizens not to take cruises in Asia and any sort of travel may come to a screeching halt across the continent. 

Cruise liner on open water.

Image source: Getty Images.

If there's one industry that should be worried about the coronavirus it's the cruise business. Thousands of people confined to a relatively small space is a recipe for spreading disease and, as a result, customers may just decide to stay home. When governments start suggesting that a cautious approach is the right one that's also not a good sign. 

Now what

On the surface, the discount in Norwegian Cruise Line shares today seems like a good buying opportunity. Shares trade at 7.8 times 2020 earnings estimates and that's a great multiple for most consumer discretionary stocks. But this is also an industry where customers could stay away a lot longer than they will at other businesses because of the nature of cruises. I think we could be in for a rough year in 2020 for cruise operators and would be cautious buying the dip today. 

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$12.10 (-10.57%) $-1.43

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