Cruise Partnerships And Health Centers Will Expand Market Reach

Key Takeaways

• Expansion of cruise ship partnerships and focus on high-value services are expected to drive revenue growth, margins, and earnings.
  
• Robust prebooking strategy and share repurchase program highlight confidence in stability and are set to enhance earnings and EPS.
  
• Strong revenue growth may be insufficient to sustain a robust trajectory, with risks from diversification efforts and economic pressures potentially impacting revenue stability and profitability.

Catalysts

Operates health and wellness centers onboard cruise ships and at destination resorts in the United States and internationally.

• OneSpaWorld has been expanding its cruise ship partnerships, introducing new health and wellness centers on additional ships, which is expected to drive future revenue growth.
  
• The company is focusing on expanding high-value services and products, such as medi-spa and innovative treatments, which have shown significant growth and could positively impact net margins and earnings.
  
• OneSpaWorld is investing in staff training and talent management to enhance productivity and long-term growth in operating metrics, with potential positive effects on revenue per passenger and net margins.
  
• The company's prebooking revenue strategy remains robust, with recent expansions to new cruise lines, suggesting a steady revenue stream that could bolster earnings stability and growth.
  
• A new $75 million share repurchase program reflects confidence in financial strength and operational performance, expected to improve earnings per share (EPS) by returning capital to shareholders.

OneSpaWorld Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OneSpaWorld Holdings's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.4% today to 9.1% in 3 years time.
• Analysts expect earnings to reach $103.6 million (and earnings per share of $0.94) by about July 2028, up from $67.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.8x on those 2028 earnings, down from 33.2x today. This future PE is greater than the current PE for the US Consumer Services industry at 19.1x.
• Analysts expect the number of shares outstanding to decline by 1.93% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

OneSpaWorld Holdings Future Earnings Per Share Growth

Risks

• Despite strong growth in revenue and EBITDA, the 4% increase in total revenues may not be robust enough to maintain a compelling growth trajectory, potentially affecting future revenue growth expectations.
  
• There is a $1.5 million decrease in land-based spa business, partially due to the closure of hotels, indicating potential risks in diversification efforts and impacting overall revenue stability.
  
• Competitive pressures or economic shifts resulting in reduced guest spending could push earnings toward the lower end of guidance, potentially impacting net margins negatively.
  
• Disruptions or pricing changes by suppliers, despite being currently mitigated, could affect cost structures, thereby impacting net margins and profitability.
  
• Sensitivity to significant economic downturns, like the Global Financial Crisis, could affect spend patterns onboard, potentially affecting earnings and revenue per passenger metrics.

Valuation

• The analysts have a consensus price target of $22.0 for OneSpaWorld Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.1 billion, earnings will come to $103.6 million, and it would be trading on a PE ratio of 24.8x, assuming you use a discount rate of 6.7%.
• Given the current share price of $21.63, the analyst price target of $22.0 is 1.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.