Royal Caribbean Cruises shares fell by -1.3% during the day's morning session, and are now trading at a price of $164.62. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
an Increase in Expected Earnings Improves Its Value Outlook but Its Shares Are Expensive:
Royal Caribbean Cruises Ltd. operates as a cruise company worldwide. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.15 and an average price to book (P/B) ratio of 3.11. In contrast, Royal Caribbean Cruises has a trailing 12 month P/E ratio of 18.0 and a P/B ratio of 7.05.
When we divideRoyal Caribbean Cruises's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.48, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Company Has a Highly Leveraged Balance Sheet and a Declining EPS Growth Trend:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $9,494 | $10,951 | $2,209 | $1,532 | $8,840 | $13,900 |
| Operating Margins | 20% | 19% | -208% | -252% | -9% | 21% |
| Net Margins | 19% | 17% | -262% | -343% | -24% | 12% |
| Net Income (M) | $1,811 | $1,879 | -$5,797 | -$5,260 | -$2,156 | $1,704 |
| Net Interest Expense (M) | $334 | $409 | $844 | $1,292 | $137 | -$1,402 |
| Depreciation & Amort. (M) | $1,034 | $1,246 | $1,279 | $1,293 | $1,407 | $1,455 |
| Diluted Shares (M) | 212 | 210 | 214 | 252 | 255 | 283 |
| Earnings Per Share | $8.56 | $8.95 | -$27.05 | -$20.89 | -$8.45 | $6.31 |
| EPS Growth | n/a | 4.56% | -402.23% | 22.77% | 59.55% | 174.67% |
| Avg. Price | $109.96 | $112.57 | $65.95 | $82.16 | $69.1 | $164.62 |
| P/E Ratio | 12.79 | 12.55 | -2.44 | -3.93 | -8.18 | 24.83 |
| Free Cash Flow (M) | -$181 | $692 | -$5,697 | -$4,108 | -$2,229 | $580 |
| CAPEX (M) | $3,660 | $3,025 | $1,965 | $2,230 | $2,710 | $3,897 |
| EV / EBITDA | 11.61 | 10.32 | -8.86 | -14.71 | 60.96 | 14.54 |
| Total Debt (M) | $10,778 | $11,035 | $19,329 | $21,090 | $23,391 | $21,452 |
| Net Debt / EBITDA | 3.58 | 3.24 | -4.71 | -7.14 | 33.47 | 4.84 |
| Current Ratio | 0.17 | 0.15 | 0.95 | 0.49 | 0.37 | 0.19 |
Royal Caribbean Cruises has declining EPS growth, not enough current assets to cover current liabilities because its current ratio is 0.19, and a highly leveraged balance sheet. On the other hand, the company has growing revenues and increasing reinvestment in the business working in its favor. Furthermore, Royal Caribbean Cruises has weak operating margins with a stable trend and negative cash flows.
