Will cruise stocks make a big comeback in 2024? You need to understand the financial secrets of the three major shipping giants

In 2023, the US stock market was led by tech stocks, but valuations have already soared to the sky. Smart capital is starting to look everywhere for a “duo”—industries with growth potential that are also severely undervalued. Cruise stocks are such an opportunity, with even the chance to double investors’ returns!

Why Are Cruise Stocks Severely Undervalued?

When it comes to cruise stocks, many people’s first reaction is the pandemic disaster. The three-year pandemic nearly destroyed the entire industry—unlike hotels that can switch to takeout, or airlines that can develop cargo services, cruise revenues were wiped out completely. This made cruise companies the most fundamentally weakened and worst-performing stocks in the tourism industry.

But this is precisely the opportunity. Post-pandemic, travel has rebounded explosively worldwide, and the cruise industry is reborn from the ashes. Because they fell the hardest, the base is extremely low. Even if stock prices only return to pre-pandemic levels, it will still be a substantial return for investors.

More importantly, the fundamentals of cruise stocks are accelerating in 2024: consumer spending expectations on travel are rising, cruise orders are accelerating, average ticket prices are higher than in 2023, and nearly two-thirds of orders have already been presold—indicating market demand far exceeds expectations.

The Profit Logic of Cruise Stocks Is Actually Very Simple

The revenue of cruise companies comes from two parts: ticket sales and onboard spending (food, drinks, entertainment, etc.). The factors affecting revenue are only three: sales volume, ticket prices, and per capita consumption. All three are expected to grow in 2024.

Although cost structures are detailed, aside from port fees, other costs (marketing, personnel, fuel, maintenance, etc.) fluctuate with performance. This means that when performance improves, profit leverage becomes obvious.

While many analysts warn about oil price risks, in reality, fuel costs account for less than 10% of revenue, and with LNG fleet replacements, this proportion will decrease further. The real culprit suppressing profitability in the cruise industry is high debt interest.

Debt Is Gradually Reducing, Profit Is Set to Unleash

This is the key driver for cruise stocks in 2024:

• Carnival Cruise Line (CCL) debt ratio: 86%
• Royal Caribbean (RCL) debt ratio: 86.5%
• NCLH (Norwegian Cruise Line) debt ratio: 97.7%

The high debt ratios are due to income disruptions during the pandemic, forcing companies to borrow heavily, and credit ratings were downgraded, causing financing costs to soar. But as business normalizes and cash flows remain healthy, the three major cruise companies are actively paying down debt.

The crucial point is that in 2024, the US will start a rate-cutting cycle, and cruise companies’ credit ratings are improving, leading to significantly lower future financing costs. This means that even with limited profit growth from core operations, just reducing debt can directly boost net profit—a hidden profit release mechanism.

Investment Value Comparison of the Three Major Cruise Stocks

Key Difference: Royal Caribbean focuses on high-end itineraries, with the highest per-guest spending and best profitability quality. More importantly, it did not aggressively raise capital during the pandemic like the other two, so it has the smallest equity base and the most flexible EPS growth.

In contrast, Carnival and NCLH have doubled their share capital. Even if revenue and profits hit new highs in the future, EPS will be diluted by more than half, limiting upside potential.

2024 EPS Expectations and Investment Value

Based on analyst estimates:

• Carnival Cruise Line: EPS expected to be 0.96 yuan in 2024 (turning profitable this year), current P/E ratio about 19x
• Royal Caribbean: EPS expected to be 9.12 yuan in 2024 (up 39% year-over-year), current P/E ratio about 14x ⭐
• NCLH: EPS expected to be 1.11 yuan in 2024 (up 79% year-over-year), current P/E ratio about 18x

Using 2024 EPS as a reference, RCL has the lowest P/E ratio and the most investment potential.

Looking back at the cruise industry’s historical peak (2014-2017), Carnival and NCLH had P/E ratios over 40, and RCL exceeded 30. Based on this benchmark, the probability of cruise stocks doubling profits in the next 1-2 years is very high.

Why Is the Cruise Industry Worth Watching Long-Term?

Low volatility: Passengers typically book 6 months to a year in advance, with low cancellation rates and a high repeat rate of 67%. The main customer group is middle-aged and older tourists with ample assets, less affected by economic cycles.

Travel cost advantages: Compared to traditional travel that separates transportation and accommodation payments, cruises are inherently cheaper. With hotel and airfare prices soaring, cruises offer a higher cost-performance ratio, increasing appeal to middle-class families.

Market penetration is very low: Cruises are still a niche within the entire tourism industry, with a high growth ceiling. Although the three major operators hold over 80% of the market, the market is far from saturated, and room for price increases still exists.

The Best Time to Invest in Cruise Stocks

From an investment return perspective, 2024 is a high-probability, high-reward time to buy cruise stocks. The low base created by pandemic declines, the ongoing travel boom, debt reduction, and falling financing costs—multiple positive factors are stacking up, and the cruise stock recovery has just begun.

The key is to choose the right target. RCL, with the best profit quality and smallest equity base, is the most resilient among peers. While the other two also have opportunities, their EPS dilution pressure is greater, making RCL the most cost-effective choice.