Sometimes the market asks too much of a given company -- and it really rankles me. We've seen too many companies report great numbers this quarter and the market has yawned, or actually trashed their shares for no good reason -- other than misperception.
Take yesterday. Norwegian Cruise Line (NCLH) reported a really terrific set of numbers and told a very solid story. The stock managed to rally a point and change -- and at least come back from the depths it had been trading at, having gone from $57 to $41 leading up to the quarter. Still, this consistent grower is selling at 10x earnings and is down 7% for the year.
What's Norwegian's crime? It is being viewed as a cyclical company with a boom-bust stock. That's just plain wrong. You have a company that is sold out on all of its ships, including the deluxe portion of the fleet, and already has 65% of its rooms booked for 2019. Who has that kind of visibility anymore? How can that be cyclical?
Frank Del Rio, the CEO, has done everything he can to try to get people to realize that his stock is anything but cyclical. But the objections keep coming.
Objection number one: You can't make any more from customers beyond their room fee. Totally wrong, every year he makes a little more from customers with on-board fees for different accoutrements.
Objection number two: There is too much capacity coming on. Frank will tell you he needs the capacity. You say prove it? How about the Alaskan evidence: The fleet has 15% more capacity this year and it's going to have a 25% increase in revenue.
Objection number three: It's a dying industry; only old people take cruises. While the baby boomers are the biggest cohort, millennials regard cruises as a bargain and have been flocking to them. There is good repeat business with younger people. I ought to know; my twenty-four-year-old daughter loves them in part because they are inexpensive.
Objection number four: Raw costs, like fuel, are going up and up and their margins will be squeezed. Wait a second. Have you noticed that oil is in freefall? Only airlines benefit more from the collapse than cruises lines.
But it doesn't matter. The industry, wrongly, has the cyclical tag.
Or take the stock of Ralph Lauren (RL) . After wandering in the wilderness for ages, the company is finally about to inflect in the United States. The numbers are coming through in part because of better digitization, fresher looks and, most important, the closing of losing doors.
And what happens when they report? The stock drops nine points in a straight line, not unlike VF Corp. (VFC) when it reported a very good number and fell from $89 down to $77.
DowDuPont (DWDP) has been regarded as a totally cyclical company. even as I could argue its three divisions are totally specialty -- with high growth. You don't put up numbers that are up 10% year-over-year in this environment, where many chemical companies' stocks are collapsing, and call it cyclical. But this one has collapsed more than any. It's wrong. The market wants way too much from this company.
I wish I could say these are "show me" stocks. The truth is, they've shown. They should be bought.