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Why Norwegian Cruise Line's Stock Plunged 10% Today

What happened

Shares of Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) fell as much as 10.2% in trading Monday as the market's concern over coronavirus deepened. At 3:45 p.m. EST shares were still down 9.2% and showed no sign of recovering today.

So what

Just last week, Norwegian Cruise Line said it had cancelled 40 voyages in Asia and that the coronavirus would take $0.75 from expected earnings per share in 2020, which were expected to be $5.40 to $5.60 per share. The State Department urged citizens not to take cruises in Asia and any sort of travel may come to a screeching halt across the continent.

Image source: Getty Images.

If there's one industry that should be worried about the coronavirus it's the cruise business. Thousands of people confined to a relatively small space is a recipe for spreading disease and, as a result, customers may just decide to stay home. When governments start suggesting that a cautious approach is the right one that's also not a good sign.

Now what

On the surface, the discount in Norwegian Cruise Line shares today seems like a good buying opportunity. Shares trade at 7.8 times 2020 earnings estimates and that's a great multiple for most consumer discretionary stocks. But this is also an industry where customers could stay away a lot longer than they will at other businesses because of the nature of cruises. I think we could be in for a rough year in 2020 for cruise operators and would be cautious buying the dip today.

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Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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