Royal Caribbean Cruises Ltd. RCL shares are currently trading at a premium to its Zacks Leisure and Recreation Services industry, with its forward 12-month price-to-sales (P/S) ratio at 3.37X. The industry is currently trading at 2.28X.

The company is also trading currently at a premium compared with similar players like Norwegian Cruise Line Holdings Ltd. NCLH, Carnival Corporation & plc CCL, and OneSpaWorld Holdings Limited OSW. NCLH, CCL and OSW are trading with forward 12-month P/S multiples of 1.10, 1.07 and 2.02, respectively.

Royal Caribbean Stock Trades at a Premium

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Although the premium valuation may raise some concerns, it underscores the market’s confidence in RCL's robust financial performance and continued growth potential. The stock has shown impressive growth in 2024, soaring 87.2% in the past year and significantly outpacing 18.4% growth of the industry. This remarkable performance has drawn investor attention. Over the same period, the broader Zacks Consumer Discretionary sector has rallied 11% and the S&P 500 has risen 23%.

RCL Stock’s Past-Year Price Performance

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RCL is benefiting from strong demand in cruising, with both new and loyal guests contributing to positive booking trends. Consumer spending onboard and pre-cruise purchases are also showing strong growth. The company plans to invest in a modern digital platform to improve the vacation booking process and increase customer spending.

Apart from company-specific tailwinds, RCL is positioned to benefit from the overall strength of the cruise industry. The momentum heading into 2025 is evident, with advanced bookings reflecting strong demand. The cruise industry is projected to surpass 37 million passengers globally in 2025, with market revenue expected to grow 10% year over year. These trends signal that RCL is likely to benefit from favorable industry conditions.

What’s Driving RCL’s Premium Valuation?

Strong Booking Trends: Royal Caribbean is seeing strong booking volumes and a rise in consumer spending, reflecting a positive demand and pricing environment. The company reported solid booking volumes across all key itineraries in the third quarter of 2024, along with an increase in consumer spending onboard and pre-cruise purchases, surpassing the 2023 reported levels. Higher participation at increased prices contributed to these gains, with load factors reaching 111% in the third quarter.

The company remains optimistic about the demand and pricing outlook for 2025. Its flexible sourcing model, AI-driven yield management tools and strong brand appeal enable RCL to attract a wide variety of guests, including younger demographics and higher-yielding customers. Customer deposits have shown consistent growth, reaching $5.32 billion as of Sept. 30, 2024, from $5.31 billion in the prior-year period.

Ship Launches & Fleet Expansion: RCL is focusing on introducing ships and innovative onboard experiences to enhance offerings and drive higher yields and margins. In the third quarter of 2024, the company launched Utopia of the Seas, a new ship quickly reshaping its short Caribbean offerings. Demand for Utopia has significantly outpaced expectations in ticket pricing and onboard revenues.

Royal Caribbean is expanding its fleet with plans for a fourth Icon-class ship, set to join in 2027, following the strong reception of Icon of the Seas and anticipation for Star of the Seas. These additions will help improve vacation experiences, attract customers and drive profitability. Other upcoming launches include Star of the Seas in third-quarter 2025 and Celebrity Xcel in fourth-quarter 2025, with the seventh Oasis-class ship expected in 2028.

RCL's 2025 Prospects Look Strong: Royal Caribbean is seeing strong demand for 2025, with bookings already exceeding the 2024 levels. Load factors are in line with prior years but at higher rates, which will help optimize pricing and drive yield growth. For 2025, RCL expects a 5% increase in capacity, driven by the addition of ships and the expansion of its offerings.

Caribbean capacity is projected to grow 5% in 2025, accounting for 57% of RCL’s total deployment. Additionally, the company is preparing for the opening of Royal Beach Club Paradise Island at the end of 2025, which will support its Caribbean itineraries in 2026. European itineraries will account for 15% of capacity, with Alaska at 6% and the Asia Pacific at 11%.

High Return on Equity for RCL Stock

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Royal Caribbean’s trailing 12-month return on equity (ROE) of 52.92% significantly outpaces the 21.31% average earned by companies in the industry. This superior ROE underscores RCL’s efficient management and ability to generate strong returns for shareholders, reinforcing its investment appeal.

Analysts See Upside Despite Premium Valuation

Despite its high valuation, Royal Caribbean’s upward revisions in earnings per share estimates for 2025 highlight analyst confidence in the stock. In the past 60 days, analysts have raised their estimates by 1.7% to $14.42. The estimated figure indicates a year-over-year growth rate of 23.8%.

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

The Zacks Consensus Estimate for 2025 sales is pegged at $18.05 billion, suggesting 9.5% year-over-year growth.

Conclusion: Why RCL Stock Is Still a Buy?

Despite its high valuation, Royal Caribbean is a compelling investment opportunity. This Zacks Rank #2 (Buy) company is well-positioned to benefit from strong demand in the cruising industry, driven by new and loyal guests. RCL is set to maintain its growth trajectory with impressive booking trends, a rise in consumer spending, and a robust pipeline of new ships and innovative experiences. The anticipated 2025 capacity expansion, especially in the Caribbean, along with the upcoming launch of ships, further strengthens its prospects.

The favorable market outlook for the cruise industry and Royal Caribbean’s impressive return on equity bolster confidence in the stock. As analysts project growth in earnings, RCL continues to show upside potential for investors. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Carnival Corporation (CCL) : Free Stock Analysis Report

Royal Caribbean Cruises Ltd. (RCL) : Free Stock Analysis Report

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OneSpaWorld Holdings Limited (OSW) : Free Stock Analysis Report

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