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Cruise Line Stock Analysis | Should You Buy Cruise Stocks? - YouTube
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what's up guys Nick here back with
another video today we are taking a look
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at the Cruise Lines is now the time to
invest? I'm a self-taught stock investor
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and I found it annoying how much awful
advisor is out there so I decided to
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make videos to show people the right way
how to do things and stop losing money I
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went through all the financial
information for these companies and I
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found some pretty interesting stuff that
you're gonna want to know if you're
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considering investing at the end I'll
also give you my personal recommendation
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let's take a look a lot of people say
that the best time to buy a stock is
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when the price is way down well right
now all three of the major cruise
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companies are down about 70% over the
past six months so we need to figure out
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if this is an appropriate drop or if
this is a complete overreaction the
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first thing we need to take a look at is
how are these companies performing
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before the covetous so here's the
revenue for Carnival Royal Caribbean and
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Norwegian from 2010 to 2019 what we can
see is Norwegian was the biggest grower
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during the time period Royal Caribbean
had steady growth and Carnival was a
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little slow for the first half of the
decade but picked up a lot in 2016 all
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of their operating margins averaged
around 15% which is a pretty good number
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they also showed pretty steady net
income growth that matched along with
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their revenue growth so let's take a
look at their balance sheet this part's
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gonna be a little odd because Royal
Caribbean and Norwegian report their
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first quarter ending on a different date
than Carnival does but what we're gonna
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be able to see is how Norwegian and
Royal Caribbean were impacted in the
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first month of the pandemic so let's
take a look at how things change for
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Royal Caribbean and Norwegian between
December 31st and March 31st so we can
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see at the end of 2019 both of these
companies were in decent debt positions
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because they were both reporting their
debt was about a hundred percent of
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their equity but we can see how things
change very quickly once we got to the
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end of March Royal Caribbean was
actually reporting that their debt was a
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hundred and sixty two percent of their
equity in March and Norwegian was
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reporting that they were a hundred and
ninety five percent of their equity by
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March so the most recent information we
have from Carnival is they initially
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reported their debt at the end of
November to be forty five percent of
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their equity and at the end of February
they reported their debt had only gone
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up to sixty percent of their equity it's
obvious that Carnival was in the best
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position debt wise before the pandemic
but we have to wait and see how exactly
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it changed as they went through the
second quarter so if we look further
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into the balance sheet we can actually
figure out why they had to take out this
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debt we can look at something called the
current ratio the current ratio is
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basically a comparison of their current
assets which is their own hand cash and
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their income that they're about to
receive versus their debts that are
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coming up in the next year for a person
this would be like taking somebody's
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income for the year plus all of their
cash in their bank account and comparing
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it to all the bills that they have
coming up throughout the year and to be
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expected all of these positions are not
very good since they aren't sailing
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right now in a normal situation your
current assets should be 200% of your
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current liabilities we can see that all
of these cruise lines are only able to
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cover between 25 to 60 percent of their
current liabilities with current assets
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but also keep in mind while you're
looking at Carnival on this that they're
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reporting this from the end of February
while the other two are reporting at the
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end of March so we would expect this to
get just a little bit worse over this
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time period the last thing we need to
take a look at is their cash flow
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statement they all reported a positive
change in cash over the time period but
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if you look closer you can see that
Royal Caribbean and Norwegian borrowed
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four point seven and one point nine
billion dollars in debt and that's
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actually what gave them the positive
cash flow if you look at the free cash
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flow you can actually see their capital
expenditures which are basically the
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costs they're paying for all their
physical assets like their boats and
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docks are already exceeding the cash
that they're bringing in from the
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business so what's clear about this is
obviously not sailing ships and not
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taking in any revenue is really bad for
the business and things are quickly
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gonna get worse if they don't start
bringing in revenue so the next thing I
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did was read through their annual
reports and these companies don't report
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information exactly the same way so it
can be a little bit difficult to compare
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perfectly but what I found was about
fifty percent of the revenue comes from
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North America itself the other halves
were split between Europe and Asia but
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it wasn't as consistent on how much of
their money was split between the two
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Carnival had an interesting quote where
they said that most of their bookings
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typically comes several months in
advance of the departure date and
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typically the longer cruises are booked
further in advance they also said that
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30 percent of the revenue comes from
onboard services so if they are able to
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hold on to your money they still lose
out on that onboard service revenue
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norwegian was actually the
had any information about the
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coronavirus in their annual report this
is probably because they filed their
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annual report last so they had the best
idea that this was going to be a big
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issue going forward they said that the
spread of Cova 19 particularly in north
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america could exacerbate its effect on
us any future wide-ranging health scares
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would also likely adversely affect our
business financial condition and result
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of operations so let's take a look at
the current valuations that these
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companies are all trading in I'm going
to compare the current price to what
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they were earning in 2019 because they
all reported big losses in the first
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quarter so it can be a little bit
difficult to tell what exactly we're
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looking at so we can actually see that
all of these companies are trading
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between four to five times their
earnings for 2019 all of these
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valuations are very cheap if things were
to return to normal immediately right
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now in July of 2020 the analysts are
projecting huge losses for all of these
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companies all the way out until 2021 and
if the pandemic situation in North
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America only continues to get worse
problems are gonna get even bigger you
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have to decide though for yourself if
you think this risk is worth it it could
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take a couple years before things go
back to normal but there's huge
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potential upside for gains probably up
to double their share price from where
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they are right now personally I am
avoiding buying any shares of these
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cruise lines which is different from
what I said back from when this pandemic
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started when the stocks for these
companies had initially dropped I
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actually had bought some stocks in the
cruise lines but I ended up selling them
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after making about 10% because I didn't
feel comfortable continuing to hold them
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not knowing how the situation was going
to resolve and even what normal would
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look like once things get back to normal
until people feel like they can actually
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go get on a cruise and they don't have
to worry about getting sick or getting
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stuck at a port for months in quarantine
people probably aren't going to be
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rushing back in even if they're booking
cruises most of the companies have
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pretty liberal cancellation policies so
just because bookings are up that
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doesn't necessarily mean that there's
guaranteed cash coming in the near
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future they also have continued to
extend when they're going to be able to
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start sailing we don't necessarily know
how far they're going to have to
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continue extending until things get good
enough or they can start sailing again
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I could be completely wrong by passing
up this opportunity and maybe everything
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goes away in a couple months and we get
back to normal by the beginning of next
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year and these cruise lines are making
tons of money again I just don't feel
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comfortable taking on that type of risk
when I know there's better opportunities
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out there for me to buy and make money
off of one of my favorite Warren Buffett
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quotes is that there's no called strikes
in the stock market that basically means
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that you can stand there at the batter's
box and watch pitch after pitch after
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pitch go by and you don't have to worry
about any negative impacts don't lose
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money if you made it this far and you
enjoy this content please take a second
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just scroll down and hit the like button
for me it really helps me out so I can
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keep making videos for you also one last
disclosure I don't currently have any
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positions in any of the cruise line
companies talked about in this video and
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I don't plan to open any positions with
any of the cruise lines anytime soon
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thanks for watching
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