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Why Norwegian Cruise Line, Royal Caribbean, and Carnival Sank Today

By Joe Tenebruso - Mar 5, 2021 at 7:07PM

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Another stock offering means more dilution for investors.

What happened

Shares of Norwegian Cruise Line Holdings (NCLH 5.26%) plunged 12% on Friday after it announced another massive stock sale. Fellow cruise-ship operators Royal Caribbean (RCL 4.79%) and Carnival (CCL 5.75%) (CUK 5.38%) also declined by 5% on the news. 

So what

Norwegian said it will sell roughly 47.6 million shares for $30 per share. It intends to use the approximately $1.4 billion in gross proceeds to buy back debt. The offering price was nearly 9% below the closing price of Norwegian's stock on Thursday. 

Many shareholders apparently didn't appreciate the steep discount -- or the fact that their ownership of the company will be diluted -- and decided to sell their shares.

A downwardly sloping stock chart.

Cruise-ship stocks fell on Friday. Image source: Getty Images.

Royal Caribbean and Carnival fell in kind. The size and price of Norwegian's stock offering likely reminded investors that the major cruise lines are not out of the woods yet. With most of their ships still stuck at port due to coronavirus-related voyage postponements, Norwegian, Carnival, and Royal Caribbean are likely to continue to generate losses until the COVID-19 crisis subsides.

Now what 

Promising vaccines from the likes of Pfizer, Moderna, and Johnson & Johnson could help to dramatically reduce COVID-19 case counts, which would make it easier for the cruise lines to resume full-scale sailing operations. But until that occurs, cruise-ship stocks remain risky investments.

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Stocks Mentioned

Norwegian Cruise Line Holdings Ltd. Stock Quote
Norwegian Cruise Line Holdings Ltd.
NCLH
$16.20 (5.26%) $0.81
Carnival Corporation Stock Quote
Carnival Corporation
CCL
$13.97 (5.75%) $0.76
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$58.19 (4.79%) $2.66
Carnival Corporation Stock Quote
Carnival Corporation
CUK
$12.94 (5.38%) $0.66

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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