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Royal Caribbean's Shares Surged Beyond 150% in the Past Year. Is This an Opportune Moment for Purchase?

Royal Caribbean has navigated through rough seas more smoothly, a fact already acknowledged by shareholders.

Royal Caribbean's Shares Surged Over 150% within the Past Year. Is the Purchase Opportunity Already...
Royal Caribbean's Shares Surged Over 150% within the Past Year. Is the Purchase Opportunity Already Missed?

Royal Caribbean's Shares Surged Beyond 150% in the Past Year. Is This an Opportune Moment for Purchase?

For Royal Caribbean (RCL 0.42%), the skies might be turning a brighter shade of blue than the oceans its ships sail on. The organization just released its earnings for the third quarter of 2024, indicating higher reservations and boosted forecasts for the ongoing year.

These advancements have given a push to Royal Caribbean's stock price over the past year. The question now is if this price increase can persist or if the voyage for Royal's bull market has come to an end.

Royal Caribbean's Performance

In the first three quarters of 2024, the company reported almost $13 billion in revenue, marking a 20% annual increase compared to the same period in 2023.

During its Q3 2024 earnings call, CEO Jason T. Liberty attributed the increase to higher discretionary spending on leisure. In addition, the load factor climbed to 111%, an outstanding accomplishment considering that the sector considers 100% capacity as having two occupants in every cabin.

As a consequence, the company's net income for the first nine months of 2024 exceeded $2.3 billion, a 64% increase over the previous year. Royal Caribbean managed to restrict the growth of operating expenses, accounting for the majority of the increase.

As previously mentioned, the company's improved results and visible progress beyond the pandemic-driven shutdowns have significantly boosted investor confidence, leading to an increase of more than 150% over the last year. This not only outperformed its two primary competitors, Carnival Corp. and Norwegian Cruise Line Holdings, but also exceeded its own historical growth rates.

Royal Caribbean's Future Outlook

The company reports that bookings for 2025 surpassed those of 2024 by one year. Moreover, analysts project 19% revenue growth for 2024, followed by a deceleration to 9% in 2025. These figures suggest that the recovery from the pandemic is well underway.

Despite the deceleration, the company's valuation metrics indicate both value and financial improvement. The stock's P/E ratio stands at 23, although more expensive than Carnival, whose stock has a P/E ratio of 20 times its earnings, Royal Caribbean still appears relatively inexpensive. Furthermore, its forward P/E of 18 implies that analysts expect significant profit gains, which bodes well for its stock.

The company's total debt of $21 billion is gradually decreasing, although the $7 billion in shareholders' equity introduces a substantial financial burden.

Despite this debt load, Royal Caribbean continues to expand its fleet, having delivered two additional cruise liners in the first half of the year and anticipating the addition of three more ships over the next two years, as well as two additional vessels through its joint venture with TUI Cruises.

These gains will likely fall short of allowing Royal Caribbean to catch up to Carnival, which controls 43% of the industry's total passenger count, according to Cruise Market Watch. Nevertheless, with Royal Caribbean holding 27%, it remains a significant player in the cruise industry, and the added capacity will keep it ahead of third-place Norwegian Cruise Line Holdings (NCLH -0.04%), which brings in approximately 9% of all cruise passengers. This should enable it to continue capturing a substantial portion of the promising demand for cruises.

Investing in Royal Caribbean Stock

Given the current circumstances, it seems that there may still be an opportunity to invest in Royal Caribbean stock. Although Carnival leads in passenger counts, and Carnival's stock appears cheaper from a P/E ratio perspective, Royal Caribbean's stock price growth has surpassed its rivals. Moreover, the strength of occupancy and bookings suggests that the company's investments in additional capacity will likely yield positive returns for its cruise line stock.

With a relatively low earnings multiple and signals of continued growth, it is likely that investors will continue to derive benefits from owning shares of Royal Caribbean stock.

The impressive revenue growth and net income increase for Royal Caribbean have caught the attention of investors, leading to a significant stock price increase of over 150% over the past year. With this strong performance and promising future outlook, it might be an opportune moment to consider investing in Royal Caribbean stock.

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