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Even as Royal Caribbean Cruisers Return, It Remains More of a Trade

If you have owned Royal Caribbean (NYSE:RCL) stock over the last year, you have matched the market.
Source: Laszlo Halasi / Shutterstock.com
This is not true for the other big cruise stocks. Carnival Cruise Lines (NYSE:CCL) investors have bro…

If you have owned Royal Caribbean (NYSE:RCL) stock over the last year, you have matched the market.

Source: Laszlo Halasi / Shutterstock.com

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This is not true for the other big cruise stocks. Carnival Cruise Lines (NYSE:CCL) investors have broken even. Norwegian Cruise Lines (NYSE:NCLH) is down about 10%.

If you love action, in the form of volatility, you’ve also been happy with RCL stock. It’s been as high as $96a share, and as low as $65, over the last 12 months. That kind of action makes this investor seasick, but for those who trade as much as invest, your voyage over the past year has been big fun.

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So, what has Royal Caribbean done right, and can it keep doing it?

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Hard-Core Cruisers

Much of the story came in the company’s fourth-quarter earnings call.

It turns out people who like cruises really like cruising. It’s not about the destination. It’s about being on the boat, eating and drinking to excess. It’s about the virtual reality of the ship. President Michael Bayley described management as being “surprised by onboard spend.” Every revenue area is “outperforming significantly,” new CEO Jason Liberty said.

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While most RCL ships were going out half-full last summer, the people on them were having a great time. Almost 7% of Singapore’s denizens went on a Royal Caribbean “cruise to nowhere” last year. The boat goes out for three or even four days, there’s dining, dancing, gambling, and entertainment, then it comes back.

While Hong Kong still has stringent COVID restrictions, Singapore does not. So RCL is moving ships to there. But they will be back. Bayley sees big opportunities in the bankruptcy of Chinese rival Genting. “We’re going to make China work,” he says. 

Royal Caribbean is also moving its summer sailing season from Europe to the Caribbean, preparing for a showdown with rival Carnival in any port that will take it. Once passengers are vaccinated and have a recent COVID test they’re good to go.

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The Numbers Don’t Lie

Royal Caribbean nearly doubled its revenue in the fourth quarter, compared with the third. But it’s still at just 40% of its pre-pandemic sales.

Last year, I called RCL “more investable” compared with the other cruise lines. But you’re still just buying hope. The company had $1.36 billion in losses last quarter. On operations, about $1 was lost for every $2 that came in.

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Your bet remains that RCL has enough cash from pandemic borrowings to get through, and that business eventually returns to normal. RCL burned $1.88 billion in operating cash last year, ending the year with $2.7 billion. If it can cut that cash burn, and it should be able to, it can get through.

Analysts still see that as speculative. TipRanks lists eight analysts covering RCL stock. Three want you to buy it, two want you to sell, and three don’t know what to think. The buyers see it going as high as $136, the sellers as low as $70. The shares wrapped up last week down less than 1% at $83.69 a piece.

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The Bottom Line on RCL Stock

Royal Caribbean is the strongest of the cruise lines, but RCL stock is still more of a trade than an investment.

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The market cap of the company is $21 billion. But the listed difference in value between its assets and liabilities is just $5 billion. It needs omicron to be over. It needs a world at peace to make money. It needs these things by next year at the latest.

Meanwhile, with a beta of 2.56, RCL stock’s volatility makes it attractive for tracking the consumer mood. Consumers have cash to spend, and they want to feel better. Royal Caribbean is prepared to deliver that feeling.

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On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this story. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at [email protected], tweet him at @danablankenhorn, or subscribe to his Substack.

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