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 0.11%, juxtaposed with a three-month change of 6.04%. 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: 10/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned Royal Caribbean Group a GF Score of 68 out of 100, which signals poor future outperformance potential.
Understanding Royal Caribbean Group's Business
Royal Caribbean Group, with a market cap of $27.01 billion and sales of $13.17 billion, operates as the world's second-largest cruise company. It boasts an operating margin of 17.65% and runs 64 ships across five global and partner brands in the cruise vacation industry, with 10 more ships on order. The company's portfolio includes Royal Caribbean International, Celebrity Cruises, and Silversea, and it holds a 50% investment in a joint venture that operates TUI Cruises and Hapag-Lloyd Cruises. This diverse brand array allows Royal Caribbean Group to compete on innovation, quality of ships and service, variety of itineraries, choice of destinations, and price. The divestiture of its Azamara brand in the first quarter of 2021 marked a strategic shift for the company.
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 76.23% of companies in the Travel & Leisure industry. This ratio, which is favored by Benjamin Graham to be at least five, highlights potential challenges in handling interest expenses on outstanding debt.
The company's Altman Z-Score of 0.94 is below the distress zone threshold of 1.81, suggesting potential financial distress in the near future. Moreover, the low cash-to-debt ratio of 0.03 indicates a struggle in managing existing debt levels. The debt-to-equity ratio of 4.65 is higher than 92.56% of industry peers, signaling an over-reliance on borrowing. Additionally, the debt-to-Ebitda ratio of 5.33 exceeds Joel Tillinghast's cautionary level of 4, indicating potential financial risk 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 an average of 12.7% per year over the past three years, underperforming 73.9% of companies in the Travel & Leisure industry. This stagnation may pose concerns in a fast-evolving market. Furthermore, Royal Caribbean Group's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
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 navigate these turbulent waters should consider the company's ability to manage debt, its lack of revenue growth, and the overall unpredictability of its financial performance. For those looking for more robust investment opportunities, GuruFocus Premium members can explore 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.
