What happened
Cruise stock investors are still sailing into hot water as the summer sailing season approaches its end. For the past four days running, shares of both Carnival Corporation (CCL 1.49%) and Royal Caribbean (RCL 0.04%) have gone nowhere but down -- and even Norwegian Cruise Line Holdings (NCLH -0.77%) notched only a single "up" day in the series. On Monday, the trend continues, with Carnival stock down 3.9% as of 11:15 a.m. ET, followed by Royal Caribbean with a 3.7% loss, and Norwegian Cruise sliding only 3%.
Curiously, though, the only "bad" news on the cruisers today concerns that stock that's losing least: Norwegian Cruise.
So what
Specifically, on Friday, Howard Sherman, the CEO of Norwegian Cruise subsidiary Oceania Cruises, filed a Form 4 with the SEC disclosing the sale of 86,225 shares of the parent company's stock at an average price of $13.63 per share.
If this insider stock sale is what's spooking investors in Norwegian Cruise, however -- and especially if it's what's spooking investors in Carnival and Royal Caribbean -- I think it's an overreaction. On the one hand, yes, Sherman sold his shares for 6.5% more than Norwegian Cruise's current market price. Yes, he sold the shares after they had lost nearly 50% of their value since hitting a recent high point in February.
And yes, he sold about 38% of his stake in the company all in one go. None of these things is likely to make investors still stuck owning Norwegian Cruise feel very confident about holding onto their shares.
That being said, there's an old saw in stock market investing that says company insiders sell shares for any number of reasons (to pay income taxes for example, to get some liquid cash to buy a home, or even simply to diversify their investments). It's really hard to read an executive's mind and know if they're selling because they see little hope for a stock or for some reason entirely unrelated to the stock itself. (In contrast, insider buying can often be an optimistic sign, because as a general rule, investors only buy a stock when they think it is going up).
Now what
In short, just because one of Norwegian Cruise's execs is selling some stock doesn't mean you should sell, too. Problem is, there's a much better reason to sell Norwegian (and Carnival and Royal Caribbean, too) that's entirely unrelated to insider selling.
I've written on this subject many times already, but just to make sure this equus caballus is completely rigor mortis, here it is once more: Cruise companies are laden with debt -- $36.4 billion at Carnival, $23.8 billion at Royal Caribbean, and almost $14 billion at Norwegian Cruise. Interest rates are climbing, and the higher they go, the more expensive it gets for cruise stocks to service their debt -- and the longer it will take these companies to return to profitability (if they even can).
Both Carnival and Royal Caribbean recently announced they're raising cash to help them through this storm -- and their stocks each took a hit when they did.
Norwegian Cruise has not yet announced it will have to raise cash, but it probably will, and its stock will probably take a hit when it does. I don't know that this is the reason Mr. Sherman sold his stock last week. But I suspect it's a good reason for other cruise stock investors to be selling theirs today.
