Editor's note: The numbers in the table in this article have been corrected.
With cruising making a comeback thanks to revenge travelers (those making up for lost travel time during the pandemic), and worldwide cruise revenue expected to grow at an annual rate of 9.29% through 2027, investors might be wondering which maritime travel stocks make the best picks. Today, let's compare two different cruise companies and determine which cruise line stock makes a better buy in today's market.
The case for Norwegian
Norwegian Cruise Line Holdings (NCLH +4.79%) stock fell dramatically since the onset of COVID, and it still trades 78% below its January 2020 highs. But 2023 bookings for the cruise operator are on pace with pre-pandemic levels, and the company set a new revenue-per-passenger record last quarter. Is it finally time to buy the dip on this cruise line stock?
Passenger-derived revenues surged 14% higher than 2019 levels and surpassed company estimates during the third quarter, thanks to higher ticket prices and strong onboard revenue generation. Occupancy for the quarter matched company estimates, hitting 82% and marking a 17-point sequential improvement over the previous quarter.
As occupancy increases for the Miami-based cruise carrier, so should profitability. Considering that Norwegian set a new record for onboard passenger revenue while cruises were 30% less full than baseline levels, the future certainly looks promising. Resisting the option to lower ticket prices, which would entice more travelers and increase occupancy levels, Norwegian CEO Frank Del Rio holds firm on his strategy of "high value over low price" -- and it's working so far.
NYSE: NCLH
Key Data Points
Amid recent successes, the current economic climate and ongoing Russia-Ukraine conflict have both dragged heavily on Norwegian's performance. Citing the war in Ukraine as "a real blow," Del Rio lamented losing a substantial amount of business this year as a result of it.
The case for Lindblad Expeditions
After recovering nicely from the initial pandemic sell-off, Lindblad Expeditions (LIND +7.10%) stock printed an all-time high of nearly $22 in March 2021. However, the share price has since dropped more than 59% from those highs, to less than $9. As Warren Buffett-type investors might ask, is it time to buy the fear? Or is the fear genuinely warranted here?
Third quarter 2022 revenues for Lindblad more than doubled year over year, outperforming the same quarter in 2019 by more than 43%. Growing popularity for experience-driven expedition travel was cited as a major catalyst. Lindblad's trips, both ship-based and land-based, offer travelers a unique experience that promotes education, conservation, and sustainable tourism.
And although smaller than the luxury segment, the experience-driven expedition cruise market has grown more than three times faster than the luxury market over the past decade. Similar to Norwegian, Lindblad Expeditions enjoyed higher revenues last quarter amid lower occupancy levels, meaning revenue per passenger has increased notably. Perhaps most importantly, Lindblad posted its first operating profit in 10 quarters.
NASDAQ: LIND
Key Data Points
Despite higher revenue, Lindblad was unable to eke out a profit last quarter and finished Q3 of 2022 with a $5.5 million loss. The New York-based operator's margins have been severely affected by higher fuel costs, supply chain disruptions, and inflation. Not discouraged, Lindblad CFO Craig Felenstein thinks a "growing audience for high-quality adventure travel" suggests upcoming improvement in both occupancy and profit margin.
Which cruise line stock is a better buy right now?
To determine which of these two currently unprofitable cruise companies makes a better buy in today's market, I've compared their price-to-sales ratios as well as analysts' five-year estimates for annual revenue growth. Based solely on revenue, a stock's price-to-sales ratio helps reveal whether a company is undervalued or overpriced, a lower ratio being preferred.
| Metric | Norwegian Cruise Line Holdings | Lindblad Expeditions |
|---|---|---|
| Market cap | $7.43 billion | $582 million |
| Price-to-sales ratio | 1.25 | 0.97 |
| Five-year estimated revenue compound growth rate | (6.28%) | 7.31% |
Data source: WallStreetZen.
A slightly lower price-to-sales ratio and a much more optimistic revenue outlook make Lindblad Expeditions today's winner. If this small-cap adventure cruise provider stays on course with growth expectations, watch for that market cap to grow along with the company.
