Long-established in the Travel & Leisure industry, Royal Caribbean Group (RCL, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 2.17%, juxtaposed with a three-month change of -22.07%. However, 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.
What Is 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.
Understanding Royal Caribbean Group Business
Royal Caribbean Group, with a market cap of $21.68 billion, is the world's second-largest cruise company. It operates 64 ships across five global and partner brands in the cruise vacation industry, with 10 more ships on order through 2026. The company's brands include Royal Caribbean International, Celebrity Cruises, and Silversea. It also has a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises. The company's sales stand at $12.01 billion, with an operating margin of 17.65%. However, the divestiture of its Azamara brand in the first quarter of 2021 may impact future performance.
Financial Strength Breakdown
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 1.56 positions it worse than 75.52% of 572 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just 0.81, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.03 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 4.65, which is worse than 92.81% of 668 companies in the Travel & Leisure industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 5.33, which is above Joel Tillinghast's warning level of 4 and is worse than 68.76% of 589 companies in the Travel & Leisure industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
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 73.46% of 765 companies in the Travel & Leisure industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Royal Caribbean Group predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While Royal Caribbean Group has a rich history and a strong brand presence, its financial health and growth prospects raise concerns. Investors should tread carefully and 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.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
