We recently compiled a list of the 10 Worst Cruise Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where Viking Holdings Ltd (NYSE:VIK) stands against the other cruise stocks.
The cruise industry accelerated after taking a significant hit during the COVID-19 pandemic. As per the Cruise Lines International Association (CLIA), ~35.7 million passengers are anticipated to set sail in 2024. This translates to 6% growth as compared to 2019. JP Morgan Research highlighted that major cruise lines enjoyed a successful 2024 wave season between January and March when operators provided the best deals. CLIA highlighted that, in 2023, the passenger volume touched a record 31.7 million, exhibiting a rise of 7% over 2019 levels.
Wall Street experts believe that travel exchange-traded funds (ETFs) are well-placed to soar on the back of a resurgence in consumer demand for travel-related activities, supported by post-pandemic recovery and changing consumer behaviors. Amidst some short-term challenges, the long-term outlook for the travel sector is positive as a result of demographic shifts and an increased preference for experiential spending.
Positive Demographic Shifts Should Be a Primary Growth Enabler
Earlier, Baby Boomers used to make up the core consumer base for the broader cruise industry. Today, however, an increased number of younger travelers continue to come on board. As per CLIA, ~73% of Millennials and Gen X travelers mentioned that they would consider a cruise vacation. Also, a renowned cruise company has recently mentioned that half of its cruise customers are Millennials or younger. This is because of rising affluence. Moreover, according to the bank’s research, the spending capacity of Millennial customers has seen an increase of ~49% since 2019. Today, the average net worth of an individual aged 40 or under sits at ~$259K.
The cruises continue to attract more first-time passengers. The cruise companies are seeing “new-to-cruise” in their 2025 bookings, with this customer category rising by more than 30% versus a year ago.
The bank believes that cruise operators are improving and modernizing their offerings to make them appealing and highlighted that key operators continue to invest in new hardware, notably mega-ships and private destinations. This has been driving more eyeballs to the broader cruise and tourism industry, accelerating new-to-cruise acquisition. CLIA recently highlighted that the cruise industry has been deploying billions in new ships and engines which give flexibility to use low to zero-GHG fuels with little to no engine modification.
Cruises Over Land-based Activities
According to a survey by the bank’s research division held in April, only ~29% of respondents have excess savings. Notably, ~45% of the respondents are expected to spend less in discretionary categories over the upcoming 12 months. This implies an increased cautious behavior even in the environment of moderating inflation.
This scenario is placing cruise voyages, that are cheaper than land-based vacations, in a strong position. Consumers are focused on value within discretionary categories. The value spread between cruises and land-based alternatives stood at 25%-30% today as compared to 10%-15% pre-pandemic. Despite higher inflation, cruise lines continue to focus on improved experiences, without compromising quality or service. This should further enhance their value.
Despite a tough consumer spending environment, both ticket and onboard prices increased over the past few months. This means that the demand backdrop is strong for the overall cruise industry. The bank’s research shows that more than 85% of tickets have been booked for 2024, with a focus now turning to 2025 and bookings already exceeding historical levels. Moreover, the industry should grow revenues by high-single digits over the upcoming 5 years, tapping ~3.8% of the global vacation market by 2028.
Our methodology
To list the 10 Worst Cruise Stocks to Buy Now According to Short Sellers, we used a Finviz screener to filter out stocks catering to the cruise business. Next, we narrowed our list of stocks by selecting the ones having high short interest. Finally, the stocks were ranked in ascending order of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A luxurious cruise ship overlooking a stunning horizon, highlighting the variety of its itineraries.
Viking Holdings Ltd (NYSE:VIK)
Short % of Float (As of 15 August): 2.13%
Number of Hedge Fund Holders: 41
Viking Holdings Ltd (NYSE:VIK) operates as a holding company. The company, with the help of its subsidiaries, specializes in offering offshore recreational travel services by cruise vessels.
Short sellers continue to be bearish about Viking Holdings Ltd (NYSE:VIK) after its 2Q 2024 results. The company’s net income saw a fall to $155.8 million, or 37 cents a share, from $189.93 million, or 46 cents a share, in the same quarter of the previous year. FactSet estimated earnings of 67 cents a share. Viking Holdings Ltd (NYSE:VIK)’s revenue increased by 9% to $1.59 billion from $1.45 billion in the year-ago quarter, marginally missing the analyst estimates of ~$1.6 billion. Also, short sellers opine that the company’s short-term obligations continue to exceed its liquid assets, which might impact its balance sheet health moving forward.
On the other hand, Wall Street analysts are quite optimistic about the growth prospects of Viking Holdings Ltd (NYSE:VIK). They opine that the company’s unique position in the cruise industry, considering its emphasis on a pure-play luxury profile, should continue to act as a growth enabler. This might contribute to its robust pricing momentum. Wall Street believes that the company should achieve above-industry revenue and EBITDA growth in the upcoming years. This growth is expected to stem from its significant capacity growth and yield growth which surpasses industry averages.
Viking Holdings Ltd (NYSE:VIK)’s healthy brand recognition and advantage of long booking lead-times should also aid in achieving this outlook.
Analysts at Stifel Nicolaus upped their target price on the shares of Viking Holdings Ltd (NYSE:VIK) from $37.00 to $39.00, giving the a “Buy” rating on 23rd August. As of 2Q 2024, 41 hedge funds, holding a combined investment of $936.2 million, are bullish on the stock, as per Insider Monkey’s database.
Overall VIK ranks 10th on our list of the worst cruise stocks to buy now according to short sellers. While we acknowledge the potential of VIK as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that’s more promising than the stocks on our list, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.