YWR: Short Squeezers in the Cruise Industry
YWR: Short Squeezers in the Cruise Industry
Cruises aren’t really my thing, but the stocks look interesting.
Let me tell you why.
I was doing a data exercise to combine the short interest for stocks in the S&P 500 with the YWR Factor Scores.
The purpose was to find companies with above average short interest (short interest > 5% of shares outstanding) with a YWR Estimate Revision Score >70.
Basically, find stocks where investors are short/negative and the company is beating numbers.
Short squeeze material.
And when you look at the top 20 stocks with a short interest > 5%,ranked by the YWR estimate score, 3 of the 20 are cruise ship companies.
Norwegian Cruise Lines, Royal Caribbean, and Carnival.
Investors are short cruise companies, and yet the companies are achieving better than expected earnings and valuations are attractive (P/E’s of 9-13x 2025).
The full dataset of short interest combined with YWR factor rankings is available at the bottom of the post, and also at www.ywr.world’s Data and Models.
The Bear Case
At 6-7% of shares outstanding the short base isn’t extremely high, but relative to everything else in the S&P 500 it stands out. The simplistic bear case appears to be that middle class consumers are suffering, and can’t afford cruises. And the companies have lots of debt so high interest rates are bad.
Below is your typical retail sentiment around cruise stocks.
*Cruise lines haven't fully recovered from the pandemic, and inflation plus job and housing market tightening mean headwinds in people vacationing, plus they all have the climate change image to overcome (and in the opinion of this Millenial who has a love hate relationship with cruising) none of them have really overcome that image issue yet. It doesn't surprise me that their stocks aren't soaring.
*For me, it comes down to whether cruises are a good business? Like, are they going to produce $$ profits and do you want to be an owner for the long term. On one hand, customers are super loyal, travel is riding the 'experiences over stuff' trend, and as we all know, prices are up.OTOH, recession likely coming, the lines have some serious debt to pay off, and need to convince non-cruisers to give the product a try. Not sure the upside is worth it IMHO.
*Obviously this is just speculation, but I personally don’t like investing in purely luxury industries. Some exceptions can be made for ultra luxury (there will always be enough ultra rich people buying jets and watches), but cruises are really a middle class activity, and the middle class is always going to get hit hardest by every single disaster or government regulation. There’s any number of government regulations that could make cruising significantly more expensive for us, and that would be highly detrimental to the stock price of any cruise company.
The Bull Case
Everyone is negative and yet earnings estimates for cruise stocks are rising.
What’s the story?
I see 3 trends, actually 4.
I’m going to refer to the Norwegian Cruise Lines investor day slides. The full presentation is at the bottom of the post with the data file.
Cruises are good value. Yes, the middle class is getting squeezed, but people still want to go on vacation and cruises benefit. Cruises are more economic than land based travel.
If you are family of four travelling around Europe, renting a car every day, paying for museums, restaurants, etc it all adds up. The multi-day cruise packages including room, food and entertainment are a good deal.
Old people like cruises. There is a growing demographic of wealthy, older people who are retiring and like cruising. It’s a less stressful way to travel.
To elderly travellers it’s a big deal to only move and unpack your luggage once during the trip. Also with cruises there is no time spent on annoying bus rides and trains. All travel is conveniently taken care of at night while you are either sleeping or enjoying a show. You also don’t have to plan anything, which I think is fun, but apparently is stressful.
Watch this quick video by Solo Senior Traveler on why she likes cruising vs land vacations. I ran these reasons by my mother in law (who also likes cruising) and she agreed too.
The product is getting better. Compared to 10 or 15 years ago the ships are larger with more amenities. The cruise companies are also adding in new specialised onshore attractions, like owning their own islands in the Caribbean.
Royal Caribbean’s new Icon of the Seas has waterslides, a ropes course, rock climbing walls, different neighbourhoods with parks, an English pub, champagne bars, piano bars, casino, etc.
The cruise companies have also built their own islands in the Caribbean where everything is custom designed for a day of fun in the sun. Every activity is available and integrated with the cruise package.
Cruise companies are also becoming better businesses. They are managing and refining every detail of the trips to improve profits. This means bigger ships with more customers, economising how long it takes to clean a room, reducing how many rooms the entertainment staff take up, and optimising how many items are on the menu. Cruise companies are squeezing every detail to make more money. The cruise ship controls all aspects of the experience for 8 days, so there is a lot to work with.
Is Norwegian Cruise Lines a potential Double?
The Norwegian Cruise Lines share price has gone nowhere, which seems strange because earnings are improving, they are beating and raising guidance, leverage is falling and the company is targeting a $2.45/share EPS in 2026.
Do we get to 2026, where the leverage is no longer an issue, the cash flows are pumping, and Norwegian is generating $2.45/share and trading on a P/E of 14x, or $34/share? +100%?
Please do your own work, but it looks interesting.
Below is:
The full short interest and YWR ranking data table for the S&P 500 stocks.
Norwegian Cruise Lines investor day presentation.