Well, a lot of institutions apparently had the nerve last week. The distressed cruise liner was number 18 on our list of most accumulated stocks with nearly $70 million in net buying, according to our propriety measuring stick.
RCL has rebounded from its COVID 19 low of $19.25 to $58.11 as we type. Wall Street sees the stock hitting $65.36 in the next 12-months, which is less than half of its 52-week high of $135.32. Before you think, “nah, ain’t no way people are going to go cruising again”, check this out.
Business Insider reports (1)
- the cruise booking site CruiseCompete.com saw a 40% increase in its bookings for 2021 over its 2019 bookings
- the number of cruise bookings for 2021 are up by 9% compared to the same period in 2020, including a substantial number of people booking brand new cruises as opposed to simply re-booking canceled cruises.
Analysts also foresee a big rebound for Royal Caribbean Cruises’ revenue in 2021. This year, sales are expected to crater to $3.6 billion from $10.95 billion in 2019. Next year, the top line is forecasted to jump to $8.45 billion, a 77% recovery from 2019’s ten-year highwater mark for sales and the most since 2016. Despites sales climbing, the consensus is that the company will lose $1.27 per share in 2021. (2)
Since earnings per share (EPS) are expected to be underwater (deliberate), let’s take a look at RCL’s five-year price to sales (P/S) history to get a sense of where its stock price might land in the next 12 to 18-months.
Since 2015, Royal Caribbean Cruises P/S ratio bottomed out at 0.45, maxed out at 3.62 and averaged 2.37. Meanwhile, analysts have a revenue range of $5.1 billion to $12.55 billon for 2021. The worst-case scenario would be the low P/S multiple on $5.1 billion (based on 209.38 million share). That works out to a price target of $10.96, ouch!
At the top end of the range, 3.62 times $12.55 billion, we get a much different experience, $216.11. Finally, the average price to sales ratio and the 2021 consensus arrives at $95.78, which is 71% of RCL’s 52-week high and mirrors the anticipated sales recovery.
Analyzing Royal Caribbean Cruises’ stock chart, if buyers can push the travel and leisure company’s price to a close above $60, the next level of resistance is $70ish, with a harder lid at $80. If/when shares finish the day around $81ish, $100 isn’t out of the question.
However, relative strength is approaching 70, which is regarded as an overbought signal. If the market were to settle back a touch, RCL’s stock could slip to $50 with a very solid base at $40.
Tying it all together, longer-term investors might consider Royal Caribbean Cruises Ltd. (RCL) if they want exposure to the cruise line industry. If the stock were to close below $40, we would likely get out, resulting in approximately $18 downside, whereas shares could have $37.67 upside to $95.78 (average P/S times 2021 consensus revenue). That’s pretty close to our minimum 2 to 1 reward to risk criteria for possible purchase. Patient investors might wait for RCL to pullback, maybe to $55ish to push over the 2 to 1 threshold.