What a brutal six months it’s been for Norwegian Cruise Line. The stock has dropped 21.8% and now trades at $20.26, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Is there a buying opportunity in Norwegian Cruise Line, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Norwegian Cruise Line Not Exciting?

Even with the cheaper entry price, we're cautious about Norwegian Cruise Line. Here are three reasons why there are better opportunities than NCLH and a stock we'd rather own.

1. Decline in Passenger Cruise Days Points to Weak Demand

Revenue growth can be broken down into changes in price and volume (for companies like Norwegian Cruise Line, our preferred volume metric is passenger cruise days). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Norwegian Cruise Line’s passenger cruise days came in at 5.79 million in the latest quarter, and over the last two years, averaged 2.4% year-on-year declines. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Norwegian Cruise Line might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability.

2. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Over the last two years, Norwegian Cruise Line’s demanding reinvestments to stay relevant have drained its resources, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 5.5%, meaning it lit $5.55 of cash on fire for every $100 in revenue. This is a stark contrast from its operating margin, and its investments in working capital/capital expenditures are the primary culprit.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Norwegian Cruise Line burned through $555.4 million of cash over the last year, and its $13.99 billion of debt exceeds the $184.4 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Norwegian Cruise Line’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Norwegian Cruise Line until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

Norwegian Cruise Line isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 9.5× forward P/E (or $20.26 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. Let us point you toward a dominant Aerospace business that has perfected its M&A strategy.

Stocks We Would Buy Instead of Norwegian Cruise Line

Donald Trump’s victory in the 2024 U.S. Presidential Election sent major indices to all-time highs, but stocks have retraced as investors debate the health of the economy and the potential impact of tariffs.

While this leaves much uncertainty around 2025, a few companies are poised for long-term gains regardless of the political or macroeconomic climate, like our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.