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Cruise line stocks have a limited upside potential despite recent surge

Cruise line stocks have a limited upside potential despite recent surge

Cruise line stocks have extended the upside momentum into March, driven by prospects that coronavirus-related restrictions would end soon.

The increasing pace of bookings during the December quarter and strong forecasts for the cumulative advanced bookings for the first half of 2022 added to investor’s sentiments.  

Future prospects are pricing into cruise line stocks

The overall sentiments rose significantly in the past couple of weeks for reopening sectors like hotels, amusement parks, and casinos.

Cruise line stocks rally has also been backed by investor’s buying strategy ahead of reopening. Consequently, the three major cruise lines’ shares rallied at an average of 50% in the last month alone.

Meanwhile, the financial numbers and operational details indicate that cruise line are likely to post massive losses in 2021 and they will burn billions of dollars every quarter.

Richard Fain, Royal Caribbean Group’s (NYSE: RCL) chief executive officer, said in the fourth-quarter conference call that operations’ suspension would extend to April.

Carnival project a $600 million cash burn in for the Q1, 2021

Shares of the world’s second-largest cruise line Carnival (NYSE: CCL), rallied more than 40% in the last month alone due to investors’ buying strategy. The company has smartly used the rally as an opportunity to sell more of its common stock.

Carnival stock performance. Finviz chart. See more stocks here.

Carnival sold $1 billion of shares in February 2021 and $2.5 billion worth of shares in September and November.

The shares offerings would definitely increase its cash potential to face market uncertainties, but this strategy would pressure the balance sheet and earnings per share in the future.

The company has raised almost $20 billion since the beginning of the pandemic through debt and share offering but a large part of that cash has already been vanished due to higher cash burn rate and fulfillment of operational expenses.

Moreover, the company expects its cash burn rate to stand around $600 million in the first quarter of 2021.

Do cruise line stocks have more upside momentum?

Cruise line stocks have already recovered the majority of losses in the past six months despite the fact that ships are standing idle and financial numbers are tumbling at a fast pace.

The recent rally has already priced in the prospects for stronger demand in the second half of 2022.

Moreover, lack of backing from financial numbers and operational factors could make it difficult for cruise line stocks to sustain the upside momentum for a longer time.

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