Norwegian Cruise Lines (NCLH)

is one of the “big 3” in the cruise industry. There’s a real growth story here thanks to a steady expansion in the firm’s ship count, along with an acquisition last year that gives it exposure to the high end of the market. Here’s what I wrote about NCLH in Cabot Top Ten Trader last month:

“Norwegian Cruise Lines describes itself as a “diversified cruise operator,” which seems accurate. The company spent a hair over $3 billion to purchase Prestige Cruises International, a deal that closed in November 2014. The company’s brands (Norwegian Cruise Line and Oceania Cruises and Regent Seven Seas Cruises—the two companies it got in the Prestige takeover) serve each segment of the modern cruise industry. Oceania serves the upper-premium segment with fine dining and service and destination-driven itineraries. Regent Seven Seas serves the luxury market with all-suite accommodations, round trip air fare and unlimited shore visits. Norwegian is also a pioneer in Freestyle Cruising, which offers guests the newest ships and more freedom and flexibility. The resurgence of the cruising industry as a whole reflects the improving economy and aging of Baby Boomers into the cruise lifestyle. The result has been a rising rate of revenue growth, from 3% in 2012 to 13% in 2013 to 22% in 2014. The latest batch of good news arrived last Thursday (May 7), when the company announced Q1 quarterly results that beat expectations on earnings by a healthy margin and showed 41% revenue growth. While revenues were cut a little by currency exchange fluctuations, investors were clearly pleased by the overall numbers. Norwegian has 21 ships offering more than 40,000 berths and expects to float five new ships by the end of 2019.”

What intrigues me is that Norwegian had a good-sized share offering (20 million shares) on May 20 by some funds that had invested in the firm back when it was private (NCLH came public in January 2013). There was no dilution to the stock; only closely held shares were sold.

That offering (along with a temporary grounding of one of its ships off Bermuda) caused the stock to drop from 57.5 (a new high) to 55 on May 20. But since then, NCLH has traded extremely tightly between 54 and 56. To me, that smells like big investors are accumulating shares, absorbing the offering in fine fashion. Add that price action to the bullish fundamentals (analysts see earnings up 27% this year and another 33% in 2016), and I see good potential.

You could nibble here, though I’m more interested in buying shares on a strong push above 56 in the days or weeks ahead, and then using a tight stop in the 51-52 zone to keep risk in check.