Since October 2024, Royal Caribbean has been in a holding pattern, posting a small loss of 4.1% while floating around $193.01.
Is now the time to buy Royal Caribbean, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
We're cautious about Royal Caribbean. Here are three reasons why you should be careful with RCL and a stock we'd rather own.
Why Is Royal Caribbean Not Exciting?
Established in 1968, Royal Caribbean Cruises (NYSE: RCL) is a global cruise vacation company renowned for its innovative and exciting cruise experiences.
1. Long-Term Revenue Growth Disappoints
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Royal Caribbean’s sales grew at a sluggish 8.5% compounded annual growth rate over the last five years. This was below our standard for the consumer discretionary sector. 
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Royal Caribbean’s EPS grew at an unimpressive 4% compounded annual growth rate over the last five years, lower than its 8.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Have Lost Money
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Royal Caribbean’s five-year average ROIC was negative 2.7%, meaning management lost money while trying to expand the business. Its returns were among the worst in the consumer discretionary sector.
Final Judgment
Royal Caribbean’s business quality ultimately falls short of our standards. That said, the stock currently trades at 13.3× forward price-to-earnings (or $193.01 per share). Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.
Stocks We Like More Than Royal Caribbean
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