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Should I Buy Royal Caribbean Stock?

The cruise line has had a rough couple of years. Is it ready for a comeback?

The entire cruise industry had a really bad pandemic. From March 2020 through July 2021, cruise ships could not sail from ports in the United States. Not sailing, however, does not mean not having expenses.

Even with a skeleton crew, it takes a lot of people to keep a cruise ship at sea. Docking for long periods was not an option because there are simply not enough docks and dock space costs money. That basically left Royal Caribbean (RCL) , Carnival Cruise Lines (CCL) , Norwegian Cruise Lines (NCLH) and other cruise lines which operate from U.S. ports in a very precarious position.

Debt was piling up and very little money was coming in. Passengers were still booking cruises, but there was no guarantee those cruises would actually happen. That forced all three companies to raise debt, cut expenses where possible, and simply try to survive.

That industry-wide nightmare ended in July 2021 when ships began limited-capacity sailings from U.S. ports. It was a long road back, but as summer turned into fall, passenger loads rose, conditions became more normal (mask requirements were dropped) and the oceans appeared to calm for an industry that had been in danger of sinking.

Royal Caribbean Lead JS

What Happened to Royal Caribbean Stock?

Royal Caribbean saw its shares drop by about 60% over the pandemic period. It has recovered a little, but as of June 24 it was trading at $40.55, not much higher than its 52-week low of $34.10. Those numbers make sense because the industry's long shutdown and slow restart put its future in doubt.

During this period, however, Royal Caribbean actually continued to move its business forward albeit cautiously. The company never stopped investing. That has included the cruise line launching Odyssey of the Seas and the new largest-cruise-ship-in-the-world Wonder of the Seas during the pandemic. It has also continued to invest in its CocoCay private island, building out a new adults-only area.

"On the destination front, we continue to make progress on the expansion of perfect day at CocoCay with the addition of Hideaway Beach. Hideaway Beach will make perfect day at CocoCay even more perfect with an entirely new experience expanding capacity to the island," CEO Jason Liberty shared during the company's first-quarter earnings call.

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Royal Caribbean has not shared whether Hideaway Beach will cost an added fee or be a no-charge adults-only area like its onboard Solarium pool decks.

In addition, the cruise line has also been building out a private beach destination on Nassau's Paradise Island.

Why It's Time to Buy Royal Caribbean Stock

It was not easy for Royal Caribbean to keep investing during periods of no or limited revenue. But, it takes a long time to build a cruise ship (about 12-18 months) and doing work on fairly isolated islands is not quick either.

Liberty (and former CEO/Chairman Richard Fain) had to believe in the company's long-term prospects to make these bets, those decisions should pay off as Royal Caribbean has more mega-ships than its rival Carnival Cruise Lines and passengers want cruises where the ship is the destination.

It also seems prescient to have built the new CocoCay, complete with a water park, a massive pool, and other amenities before the pandemic hit. The private island, as well as a similar, albeit more basic island in Labadee, Haiti, as well as the upcoming Nassau project, give the cruise line destinations people want to visit that they control.

That was very important as cruising restarted, but many ports did not want ships visiting due to covid, but it will remain a draw even as normal times return.

Royal Caribbean's stock may take years to recover, but the company was solidly profitable before the pandemic. It should turn from a loss to a profit in the latter half of 2022 and then, barring another global pandemic, the company should be able to work its way back to being the preeminent mass market cruise line.

This is a long-term (maybe a very long-term) investment, but the destination should be worth the trip.