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Is it Wise to Invest in the Cruise Industry?

June 12, 2013

Stock MarketFollowing the series of maritime accidents befalling the cruise industry since the beginning of the year and 2012’s tragic Costa Concordia capsizing incident, travelers haven’t been as keen on exploring the high seas as they once were. And so the industry’s revenues have taken a hit, as has their stock shares, which begs the question: Is it wise to invest in the cruise industry right now?

A recent Harris poll showed that the nation’s trust in Carnival has hit rock bottom, even more so than a previous poll taken shortly after the Carnival Triumph fire suggested. The country’s opinion about cruise travel has also affected Carnival’s revenue, which has already been projected to be only a fraction of what it once was.

Yet, there are many who still believe the industry will bounce back once the smoke clears and cruise lines get it together to improve maritime safety onboard vessels, but what does that mean for shareholders in the meantime?  Is this a good time to buy stock in Carnival and other cruise lines because of dropping prices?

Right after the Costa Concordia cruise ship accident in January 2012, Carnival’s stock price dropped to $32, a 33% decline over prices the previous year. Today, stocks go for around $32.50, so not much has happened in terms of stock prices falling even more after the Triumph fire and other subsequent cruise accidents and crimes. However, the company has yet to regain the strong financial presence it once boasted.

Carnival is expected to report its second-quarter earnings on June 21, so we may get a better idea of how the stock will do at that point. Yet, given that the cruise line has already lowered its 2013 earnings forecast, it’s unlikely we will see any positive improvement for the rest of the year.

Unfortunately, because of the mishaps experienced on Carnival fleet vessels, other lines have also taken a financial hit. In fact, the world’s second-largest cruise line, Royal Caribbean Cruises, Ltd., has also suffered a decrease in popularity. Though not as much as Carnival, the nation’s faltering opinion of Royal has also affected it’s stock prices, and with the line experiencing its own share of troubles, including the recent fire aboard the Grandeur of the Seas, Royal’s stock price is also running at an all-time low of $35 per share, a 30% decline from its high of $50 in January, 2012.

Yet, it’s hard to believe the cruise industry won’t rebuild and come back stronger. After all, despite all the accidents that have occurred, it is still a multibillion-dollar industry and even with price reductions, it still costs upwards of $450 for a regular 7-day Caribbean cruise.

The newly introduced Norwegian Cruise Line Holdings stock is actually doing pretty good. Since its initial public offering at $19 per share in January, the cruise company, which is the third-largest behind Royal, is currently trading at around $32 – a whopping 68% increase from its IPO price. And had the recent Carnival and Royal cruise ship accidents not occurred, who knows how much better the stock would be doing.

For financially savvy stock market players who want to take a chance on one of these stocks, it wouldn’t actually be too bad of an idea to look into investment possibilities now that the prices are low. In a few years – or maybe even a few months – the world will soon forget about all these past accidents, a new generation of cruise travelers will emerge, and the market will bounce back.

Anyone who wishes to obtain more information regarding cruise line stock can turn to a financial advisor for expert advice, but from our standpoint as cruise ship lawyers here at Lipcon, Margulies, Alsina & Winkleman, P.A., and what we know of the industry, lines are very resilient and it probably won’t be very long before the industry re-emerges stronger than ever.

 

 

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