With Profitability On The Horizon, Is Royal Caribbean Stock A Buy?

RCL: Royal Caribbean Cruises logo
Royal Caribbean Cruises

Royal Caribbean stock (NYSE: RCL) has rallied by almost 12% over the past month (about 21 trading days) considerably outperforming the S&P 500 which has remained roughly flat over the same period. So what’s driving the recent gains for the stock? Booking and customer spending trends in the cruising sector have been relatively strong lately. Royal Caribbean posted a better than expected set of Q2 results last month, noting that bookings over the quarter for 2022 sailings trended 30% above 2019 levels. Moreover, the company expects that it will be profitable by Q3, projecting an adjusted EPS of between $0.05 and $0.25. This would mark the company’s first quarterly profit since December 2019, before the Covid-19 pandemic began. Major cruise lines are also easing their Covid-19 restrictions in order to attract more customers. Royal Caribbean, for example, has dropped vaccine requirements for departures at multiple ports.  Now although the U.S. economy is facing headwinds, with growth contracting over the last two quarters, and consumer spending remaining weak, the travel industry at large appears to be holding up as people move their spending away from retail toward experiences.

However, now that RCL stock has seen a gain of about 12% over the last month, will it continue its upward trajectory in the near term, or is a decline imminent? Going by historical performance, there is a roughly equal chance of a rise or a decline in RCL stock over the next monthOut of 305 instances in the last ten years that RCL stock saw a twenty-one-day rise of 12% or more, 153 of them resulted in the stock rising over the subsequent one-month period (twenty-one trading days). This historical pattern reflects 153 out of 305, or a 50% chance of a rise in RCL stock over the coming month, implying a neutral near-term outlook for the stock. See our analysis on  RCL Stock Chance of A Rise for more details.

Calculation of ‘Event Probability’ and ‘Chance of Rise’ using last ten years data

  • After moving 6.7% or more over five days, the stock rose in the next five days on 48% of the occasions.
  • After moving 0% or more over ten days, the stock rose in the next ten days on 57% of the occasions
  • After moving 12% or more over a twenty-one-day period, the stock rose in the next twenty-one days on 50% of the occasions.

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 Returns Aug 2022
MTD [1]
YTD [1]
Total [2]
 RCL Return 9% -45% -48%
 S&P 500 Return -2% -15% 81%
 Trefis Multi-Strategy Portfolio -2% -15% 239%

[1] Month-to-date and year-to-date as of 8/28/2022
[2] Cumulative total returns since the end of 2016

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