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 0.81%, juxtaposed with a three-month change of -10.11%. 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's Business
Royal Caribbean Group, with a market cap of $24.65 billion and sales of $13.17 billion, operates as the world's second-largest cruise company. It boasts a fleet of 64 ships across five global and partner brands in the cruise vacation industry, with 10 more ships on order. The company's brands include Royal Caribbean International, Celebrity Cruises, and Silversea. Additionally, it has a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises. This diverse portfolio allows Royal Caribbean Group to compete on innovation, quality of ships and service, variety of itineraries, choice of destinations, and price. The company completed the divestiture of its Azamara brand in the first quarter of 2021, further refining its strategic focus.
Financial Strength Breakdown
Royal Caribbean Group's financial strength indicators present some concerning insights about the company's balance sheet health. With an interest coverage ratio of 1.56, it is positioned worse than 75.74% of 577 companies in the Travel & Leisure industry. This ratio, which is significantly below the preferred benchmark set by Benjamin Graham, highlights potential challenges the company might face when handling its interest expenses on outstanding debt.
The company's Altman Z-Score of just 0.88 is below the distress zone threshold, suggesting potential financial distress in the near future. Moreover, the low cash-to-debt ratio of 0.03 indicates a struggle in handling existing debt levels. The debt-to-equity ratio of 4.65 is higher than most peers in the industry, implying an over-reliance on borrowing. Additionally, the debt-to-Ebitda ratio of 5.33 exceeds Joel Tillinghast's warning level, indicating potential financial risk unless tangible assets cover the debt.
Growth Prospects
The company's growth trajectory is also a concern, as reflected by its low Growth rank. Royal Caribbean Group's revenue has declined by an average of 12.7% per year over the past three years, underperforming 73.76% of 766 companies in the Travel & Leisure industry. This decline in revenue is a red flag in a market that demands constant evolution and innovation.
Furthermore, the company's predictability rank is just one star out of five, which adds to investor uncertainty regarding the consistency of revenue and earnings.
Next Steps
Considering Royal Caribbean Group's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. Investors seeking to allocate their capital wisely should weigh these factors heavily. While the company has a strong brand and market presence, its financial and growth challenges may hinder its ability to outperform in the future.
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.
