One of the hardest-hit industries in the wake of the COVID-19 outbreak is undeniably the cruise lines. The three major publicly traded players -- Carnival Cruise LineRoyal Caribbean International, and Norwegian Cruise Line -- have been slammed in recent weeks, shedding as much as two-thirds of their peak values. 

It's not a surprise to see investors disembark from these rocky investments. There are horror stories of folks quarantined on ships with hundreds of confirmed coronavirus cases, including a handful of casualties. And just when you thought the news couldn't get any worse for the reeling industry, the U.S. State Department and the Centers for Disease Control (CDC) issued advisories over the weekend suggesting Americans avoid boarding cruises, given the heightened risk of contracting COVID-19 on the ships.

A largue Carnival cruise ship sails on blue waters.

Image source: Carnival.

Not-so-bon voyage

Carnival, Royal Caribbean, and NCL are trading 62%, 64%, and 67%, respectively, off their 52-week highs. Carnival's highs were back in March of last year, but its two smaller rivals actually peaked less than two months ago. In short, NCL stock would have to triple from here just to get back to where it was in mid-January. 

It's not a surprise to see the largest cruise line hold up the best, even though Carnival is the parent company behind the maligned Diamond Princess and Grand Princess vessels that remain quarantined with passengers. Carnival's sheer size creates operating and pricing advantages in good and bad times. It also only helps that Carnival packs the highest yield of the three out-of-favor cruise stocks.

These are turbulent times, and it's easy to see why the waters are rough for the industry. It's hard to fill cabins when folks are worried about how quickly a disease can spread in that kind of contained environment. However, it's not as if the cruise industry hasn't experienced reputational setbacks before. This is the industry that has overcome several norovirus outbreaks as well as the Achille Lauro hijacking, Costa Concordia sinking, and even the infamous poop cruise.

Cruise stocks have typically traded at a discount to the market, but now the markdowns are at the point where they're just flat-out ridiculous after Monday's latest swoon. Earnings multiples are dropping and yields are rising. 

Company 2019 P/E 2020 P/E Yield
Carnival Cruise Line (CCL -2.36%) (CUK -2.44%) 4.9 5.2 9.2%
Royal Caribbean International (RCL -1.71%) 5.1 4.9 6.5%
Norwegian Cruise Line (NCLH -0.85%) 3.9 4.7 n/a

Data source: Yahoo! Finance.

There are some caveats here, of course. All three companies are now trading for roughly five times forward earnings, but those profit targets continue to drift lower as Wall Street catches up to the financial hits that are coming. The chunky payouts at Carnival and Royal Caribbean are nice -- NCL has never paid distributions since its 2013 IPO -- but naturally they are susceptible to the industry's financial health. Carnival and Royal Caribbean did suspend their dividends during the 2008 global subprime crisis, and this could potentially play out even worse for the industry in the near term. 

Cruise ships require a buoyant economy with happy consumers excited about hitting the open waters, and that's not the course that's being charted today. Even if the world sidesteps a global recession at the other end of these viral headwinds, it's going to take the cruise industry a bit longer to recover than other travel markets. However, with the stocks at multi-year lows, patient and risk-tolerant investors may find these companies to be a lot more tempting as stocks than near-term getaway considerations. Seasoned cruise travelers know when to book future sailings to get the best rates, and investors now have that same opportunity to get in on three quality players at historically low prices.