Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Norwegian Cruise Line NCLH stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Norwegian Cruise Line has a trailing twelve months PE ratio of 11.2, as you can see in the chart below:
This level actually compares pretty favorably with the market at large, as the PE for the S&P 500 stands at about 17.5. If we focus on the long-term PE trend, Norwegian Cruise Line’s current PE level puts it below its midpoint of 16.1 over the past five years. Moreover, the current level stands well below the highs for the stock, suggesting that it can be a solid entry point.
Further, the stock’s PE also compares favorably with the Zacks Consumer Discretionary sector’s trailing twelve months PE ratio, which stands at 21.7. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.
We should also point out that Norwegian Cruise Line has a forward PE ratio (price relative to this year’s earnings) of 10., so it is fair to expect an increase in the company’s share price in the near term.
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Norwegian Cruise Line has a P/S ratio of about 2. This is lower than the S&P 500 average, which comes in at 3.2 right now. Also, as we can see in the chart below, this is well below the highs for this stock in particular over the past few years.
Broad Value Outlook
In aggregate, Norwegian Cruise Line currently has a Value Score of A, putting it into the top 20% of all stocks we cover from this look. This makes
Norwegian Cruise a solid choice for value investors.
What About the Stock Overall?
Though Norwegian Cruise Line might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of B and a Momentum Score of A. This gives NCLH a Zacks VGM score — or its overarching fundamental grade — of A. (You can read more about the Zacks Style Scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current quarter has seen three estimates go higher in the past sixty days compared to no downward revisions, while the full year estimate has seen seven upward and one downward revision in the same time period.
As a result, the current quarter consensus estimate has risen by 16.4% in the past two months, while the full year estimate has increased 3.3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Norwegian Cruise Line Holdings Ltd. Price and Consensus
Norwegian Cruise Line Holdings Ltd. Price and Consensus | Norwegian Cruise Line Holdings Ltd. Quote
Despite the bullish trends, the stock has just a Zacks Rank #3 (Hold), which is why we are looking for in-line performance from the company in the near term.
Norwegian Cruise Line is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, a robust industry rank (among the top 28%) should boost investors’ confidence.
So, value investors might want to delve deeper in this stock as it appears to be a compelling pick.
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