Cruise operator Royal Caribbean Cruises Ltd. (RCL - Get Rating) recently reported a wider-than-expected fourth-quarter loss and missed revenue expectations by 5.6%. The stock has lost 25.2% over the past month and 32% over the past nine months to close yesterday’s trading session at $64.54. It also witnessed a decline in hedge fund sentiment.

RCL is currently trading 34.3% below its 52-week high of $98.27, which it hit on November 8, 2021. Moreover, the company warned that omicron created short-term operational challenges that have weighed on its close-in bookings and will likely delay its return to profitability by a few more months. So, RCL’s near-term prospects look bleak.

Here’s what could influence RCL’s performance in the upcoming months:

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the fiscal fourth quarter ended December 31, 2021, RCL’s revenue surged 2,777.2% year-over-year to $982.25 million. However, its total liabilities increased 14.6% year-over-year to $27.17 billion. In comparison, its adjusted net loss came in at $1.22 billion, compared to $1.13 billion in the prior-year period. Its adjusted loss per share came in at $4.78, compared to $5.02 in the year-ago period.

Stretched Valuation

In terms of forward EV/EBIT, RCL’s 244.44x is 1,943.7% higher than the industry average of 11.96x. Likewise, its forward EV/S of 3.92x is 223.2% higher than the industry average of 1.21x. Moreover, the stock’s forward EV/EBITDA and P/CF of 24.34x and 21.23x are higher than the industry averages of 9.11x and 10.06x, respectively.

Low Profitability

In terms of the trailing-12-month asset turnover ratio, RCL’s 0.05% is 95.5% lower than the industry average of 1.05%. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA are negative compared to the industry averages of 17.25%, 7.91%, and 6.09%, respectively.

POWR Ratings Reflect Bleak Prospects

RCL has an overall rating of F, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. RCL has a D grade for Sentiment. This is justified as analysts expect its EPS to remain negative in the current quarter, next quarter, and the current year.

RCL also has a D grade for Value, in sync with its higher-than-industry valuation ratios. In addition, the stock has an F grade for Stability, consistent with its beta of 2.52.

Moreover, RCL has a D grade for Quality, in sync with its lower-than-industry profitability ratios.

RCL is ranked last out of the four stocks in the F-rated Travel – Cruises industry. Click here to access RCL’s rating for Growth and Momentum.

Bottom Line

RCL is currently trading below its 50-day and 200-day moving averages of $80.18 and $82.11, respectively, indicating a downtrend. Moreover, its near-term prospects look bleak because of the cruise cancellations and service disruptions caused by omicron. In addition, the stock looks overvalued at the current price level and may not be a good pick for contrarian investors.

How Does Royal Caribbean Cruises (RCL) Stack Up Against its Peers?

RCL has an overall POWR Rating of F, equating to a Strong Sell. Currently, there are no stocks in the Travel – Cruises industry with an A (Strong Buy) or B (Buy) rating. The other three industry participants, Lindblad Expeditions Holdings Inc. (LIND - Get Rating), Norwegian Cruise Line Holdings Ltd. (NCLH - Get Rating), and Carnival Corporation (CCL - Get Rating), are also rated F.

RCL shares were trading at $68.08 per share on Wednesday afternoon, up $3.54 (+5.48%). Year-to-date, RCL has declined -11.47%, versus a -10.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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