Long-established in the Travel & Leisure industry, Royal Caribbean Group (RCL, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 4.35%, juxtaposed with a three-month change of -15.05%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Royal Caribbean Group.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 3/10
- Profitability rank: 6/10
- Growth rank: 1/10
- GF Value rank: 8/10
- Momentum rank: 6/10
Based on the above method, GuruFocus assigned Royal Caribbean Group the GF Score of 66 out of 100, which signals poor future outperformance potential.
Snapshot of Royal Caribbean Group's Business
Royal Caribbean Group, with a market cap of $22.47 billion, operates 64 ships across five global and partner brands in the cruise vacation industry. The company's sales stand at $12.01 billion with an operating margin of 11.4%. Brands the company operates include Royal Caribbean International, Celebrity Cruises, and Silversea. The company also has a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises. The company completed the divestiture of its Azamara brand in the first quarter of 2021.
Financial Strength Analysis
Royal Caribbean Group's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0.91 positions it worse than 85.31% of 565 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just 0.65, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years.
Growth Prospects
A lack of significant growth is another area where Royal Caribbean Group seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -12.7 per year over the past three years, which underperforms worse than 73.18% of 757 companies in the Travel & Leisure industry. Stagnating revenues may pose concerns in a fast-evolving market.
Conclusion
Considering the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. The low financial strength rank, coupled with a declining growth rank, paints a challenging picture for Royal Caribbean Group. As value investors, it's crucial to consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
