Investing in Norwegian Air Shuttle ASA (NWARF) airline stock at this time could be considered an opportunity as well as a very bad move, depending on which stock-market expert you speak with.
Today the airline issued another 905 million new shares. As a result, the stock value has now decreased to 50% of its value since just a month ago.
Two more new share releases are scheduled for October 9 and December 9, 2020.
Since the beginning of its debt into equity plan, the number of Norwegian’s shares have increased from 164 million to 3.6 billion!
Investing in NWARF will require careful evaluation, patience, and nerves made of steel on behalf of the potential investor because you could lose it all. Or, you could score big if you believe the future looks bright for the airline.
Airline stocks during the COVID-19 pandemic
Adverse world events traditionally send all airline stocks tumbling, just to recover and grow again at a later time, once recovery has taken place. Airline stocks tumbled to all-time lows after 9/11, just to climb to new hights years after.
Then the coronavirus pandemic landed, and airline stocks took a dive again.
Norwegian’s stock value is around its lowest value ever at the moment.
How did the COVID-pandemic help Norwegian Air reposition itself for future profit?
Norwegian Air was already in a survival and reorganization mode, especially since 2019, long before COVID-19 arrived,
Amazingly, many airline analysts speculate that the timing of the pandemic is helping the airline’s plan to go from survival, for now, to profit in the future!
- The pandemic-fueled parking of airplanes, laying off employees, and unprofitable route reductions (expensive fuel and labor cost) enabled Norwegian Air to quickly bring operating costs down to an absolute minimum. The pandemic happened at a time when cost-cutting solutions were needed the most. The airline was able to cut back on expenses without being overrun by competitors who would have otherwise replaced the Norwegian route-system.
- The pandemic is allowing the airline to implement a gradual and slow recovery, emerging as a leaner airline, much more likely to achieve profits in the future.
- The new CEO, Jacob Schram had just taken the helm at Norwegian Air when the pandemic hit. Schram is a very capable problem-solver, not afraid of implementing aggressive business-steps to make his airline gradually thrive towards profit after the COVID-pandemic is over.
Norwegian’s huge debt transition into equity
Part of the airline’s restructuring called for exchanging debt for newly issued shares.
As a result, each shareholder’s stocks got severly diluted.
Can NWARF per share value increase to old levels since there are more shares out there now than ever before?
That should depend on how well Norwegian does in the future. It won’t happen overnight, but it could be a consideration an investor risk-taker would want to explore.
Dilution and value decrease
On 26 May 2020, Norwegian Air Shuttle issued 12,000,000 new shares, which were allocated in a private placement. Here’s what Reuters/NASDAQ had to say: Norwegian Air to sell new shares at close to 80% discount.
Further debt to stock issuances and dilutions are continuing.
What the future share prices will be is unknown. What if the new total shares should reach the same market capitalization as we saw before the crisis hit?
The potential of investing in Norwegian Air stock now
Norwegian Air Shuttle ASA is trading on NASDAQ under its symbol NWARF.
So, should you buy Norwegian stock now?
The fact is, even the brightest stockmarket professionals in the world are unsure of the future of Norwegian Air stock. NWARF carries a mix of recommendations from stock-trading professionals, with pretty much a divided opinion on whether to buy, hold, or sell the shares.
However, the value of NWARF shares has the potential of increasing tremendously. At the same time, the value also has the potential to decrease permanently.
No one can predict where stock values are going to be, let’s say in five to eight years from now. People can analyze stocks to death. Yet, pleasant (and unpleasant) surprises have happened before.
Very low per-share investment with the potential of huge returns
Provided the airline doesn’t declare bankruptcy or liquidate in the future, I personally believe investing in Norwegian Air stock is a sound investment. This in spite of a huge risk of the Norwegian investment.
However, if you purchase NWARF stocks, consider only putting in an investment amount that won’t break your financial wellbeing should the airline fail. In that way, the investment risk could be worth taking.
Depending on how much you invest the rewards could have the potential for gaining you a solid profit in as little as 5-8 years!
NWARF investment scenarios
In this scenario, let’s say you decide to invest in 25,000 shares of NWARF at a current buying price of $.190 (19 cents) a share. That would buy you $4,750 worth of NWARF shares.
Next, since you are a (very) patient investor you sit back and monitor your shares.
You won’t see your investment value increase any time soon. Critical factors, such as the issuance of new stocks (severe dilution), Norwegian’s business plan, and the corona pandemic keeps its grip on the airline’s ability to survive, then eventually prosper.
The value of NWARF shares at the early onset of the coronavirus pandemic
- On February 12, 2020, one NWARF share was worth $4.509. If that was today, your 25,000 share investment would be worth $112,725.
On April 4, 2020, Norwegian Air shareholders backed the airline’s survival plan, initially crafted long before the pandemic hit.
In that plan, badly needed equity was raised by issuing new shares in the airline.
95% of voters supported the conversion of about 12.7 billion Norwegian Kroner (NKR) in debt (about 1.36 billion US dollars) into equity, issued as new shares.
- By April 14 the share value had dropped to $.498 a share. This came as a result of a worsening airline coronavirus crisis as well as the issuance of additional shares and turmoil among stockholders to come to an agreement.
Hypothetical NWARF values in the future
One year from now
Once the pandemic is over your stock value should increase, if the airline can avoid bankruptcy or liquidation. But, let’s bank on Norwegian’s choice of a slow and steady process to go from survival to profit.
So, let’s assume that the share price is up to $1.25 in a year from now.
If that happens, your 25,000 shares investment would be worth $31,250.
5-8 years from now
Fast forward 5-8 years. Let’s say that Norwegian Air is doing well. Let’s look at three different scenarios:
- Your share price has increased to $6 per share. Your NWARF investment is now worth $150,000.
- Your share price has increased to $15 per share. Your NWARF investment is now worth $375,000.
- Or, in a best-case scenario, a vision that some experts consider unobtainable, your share price has increased to where NWARF was priced on September 7, 2015, at $45.28 per share. Your NWARF investment is now worth $1,132,000.
But, will NWARF ever reach $45.28 again? Only time can tell.
Is investing in Norwegian Air stock worth the risk?
Only you can decide whether you should invest in Norway’s proud Viking-airline. Some pessimists still fear the airline won’t survive long-term. Optimists, however, feel there is no way the airline will fail.
The airline will be following its new and methodical road towards profit as soon as the pandemic is over.
Plus, the very infrastructure of the country of Norway needs Norwegian Air. This is an opinion strongly on the mind of some people in the Norwegian government as well as the Norwegian people.
We have received hundreds of reader responses by email since this article was published. The vast majority of these responses have been that of great enthusiastic follow-up comments.
Reader Matej responded with a longer, analytical explanation as to what he personally thinks of a Norwegian stock investment. We are sharing Matej’s response here (with permission):
What is your opinion on investing in Norwegian Air stock? Is it worth investing in, or is the risk too big? Please let us know here!
Featured Image: Norwegian Air.
DISCLAIMER: The author of this article is not licensed or qualified to give financial, stock pick, or trading advice of any kind. The article is strictly based on the author’s own opinion. The journalist does not own any stock, shares, or interest in Norwegian Air. The reader is solely responsible for any decision as to whether or not to purchase stock in Norwegian Air.