What % of stock value does loss actually represent?
I just read that the cruise line has 98 ships in service. I guess that the single ship that sank represented what - 2% or 3% of revenues? So in the short term, they lose about 3% of their revenues. Insurance should protect them from huge near term losses, but of course the bad word of mouth will cost them, probably for 6-8 months. Repairing the ship will also cost something, to be sure.
So, instant loss of 3% to total revenues from loss of the ship this year. Bad word of mouth and press probably will lead to another 6% off of revenues this year. That probably justifies maybe a 9% discount to total revenue. Add another 1% to include costs above and beyond those covered by insurance, which I'm sure a cruise operator of this size must have. That's about a 10% temporary knock to revenues this year.
On the plus side, the stock pays about a 3% dividend, and travel is likely to increase as a whole over the next few years. (unemployment going down, and family spending is on the rise) After a situation like this, the company is also likely to go over safety protocols and such to make it less likely anything like this would happen again.
Seems like this might be an interesting 2 or 3 year investment. The question is, what discount would make the company a rather safe bet? Buying at about a 10% discount to stock price before the accident would seem to be a bit of a wash.
What do you think? Would an 18% discount to previous stock price provide enough of a discount to warrant investing in the company this week? I'm thinking of setting up an automated purchase of the stock if it gets to that point or lower, and I would appreciate any thoughts. I currently have no position in the stock, but it reminds me of BP right after the spill, and I ended up with a nice 35% return on that one over a year and a half. Thanks for your thoughts!