Cruise Shares: Risk And Return Analysis
Investors know that oil prices, terrorism, and corporate debt restructuring, areas that seriously can't be controlled, have a huge influence on the stock market. Many investors avoid airline shares because of this. They can't control one of their biggest expenses (gas) and an act of terrorism can significantly damage the industry.
Why are cruise stocks any better? Rising fuel expenses as well as Hurricane Katrina led to lower stock prices for businesses like Carnival Corporation as well as Royal Caribbean Cruises Ltd. These two cruise lines account for about 75 percent of the cruise industry, globally.
When George Allen Smith IV, from Connecticut, vanished while on a Royal Caribbean cruise, the industry received loads of damaging publicity.
Certainly, there are many downsides for cruise stocks, but some investors are bullish. First, there isn't any direct signal that the vanishing honeymooner from Connecticut has hurt ticket prices. Values on these stocks also look great.
Carnival Corporation trades at 16 times estimated '06 earnings. Its historic range is 10 to 30 times earnings. Royal Caribbean trades at 14 times projected 2006 earnings. Its historic range is 5 to 24 times earnings. Growth potential is solid as only 4 % of Americans have ever taken a cruise.
When considering cruise stocks, remember the potential risks. A sharp increase in fuel prices or another terrorist assault would most likely have a damaging effect on cruise stocks.
If you're unclear about this investment, do you know how to short a stock? This might be a far greater route for you, particularly if you are encountering corporate debt restructuring.
I think the risk outweighs the possible reward as I do not expect cruise lines to substantially outperform the broader market.
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