Why Shares of Norwegian Cruise Line Holdings Ltd. Sank in 2016

By Bradley Seth McNew Markets Fool.com

Image source:Norwegian Cruise Line Holdings

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What happened

Norwegian Cruise Line Holdings Ltd. (NASDAQ: NCLH) stock went underwater in 2016, dropping 27% according to data provided byS&P Global Market Intelligence.The cruise company faced some economic challenges mostly out of its control, which left investors unsure of its profit-generating ability even though the company reported impressive growth throughout the year.

So what

The cruise line company was actually down more than 40% after a volatile year. It released a well received full year earnings report in February, but choppy first and second quarters of guidance. The company's Q2 earnings showed a 9% increase in revenue and 12% jump in revenue, year over year -- which would have been impressive had it not been for lackluster guidance for the rest of the year.

The reason for the weaker guidance was slower-than-expected cruise bookings, as well as volatility in the market caused by weak U.S. GDP growth, Brexit, and slower demand in Europe. However, the company was able to regain some ground when it reported 16% growth in sales and a full 37% growth in earnings per share, year over year, in Q3.

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Now what

Norwegian's much more encouraging Q3 results were a good sign, and the stock is actually up 10% so far in 2017 as market trends seem to be in the cruise industry's favor.The cruise line has 24 ships currently in operation, and will add another four through 2020, and was also one of the big cruise lines that won the option of setting sail to Cuba in late 2016, which the company believes could drive demand for what has historically been an unusable cruise route.

The company faces some challenges, however, including the risk of rising fuel prices, continued volatility in the U.S. and global markets, and, of course, the risk of its larger rivals like Carnival Cruise Lines and RoyalCaribbean eating into its ability to continue raising prices. Still, the stock certainly doesn't look expensive ahead of its 2016 full year announcement in February, trading at less than 13 times forward expected earnings right now.

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Seth McNew has no position in any stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.