Is It Too Late To Consider Royal Caribbean After Its 377% Three Year Surge?

• If you are wondering whether Royal Caribbean Cruises is still attractive after such a massive recovery, or if the best gains are already behind it, this breakdown is for you.
• The stock now trades around $265.77, flat over the last week, down 4.3% over 30 days, but still up 16.0% year to date and 376.7% over 3 years, which clearly reflects a shift in how the market is pricing its risk and growth story.
• In recent months, investors have been watching capacity expansion, strong booking trends, and resilient demand for premium cruise experiences, even as consumers face tighter budgets. There has also been ongoing focus on Royal Caribbean's efforts to manage debt and invest in newer, more efficient ships, which helps explain why sentiment has stayed relatively positive despite a bumpy share price.
• On our valuation checks, Royal Caribbean Cruises scores a 6/6 for being undervalued across multiple metrics. Next, we will unpack what those approaches suggest about fair value today, then finish with a broader way to think about valuation that goes beyond any single model.

Royal Caribbean Cruises delivered 7.7% returns over the last year. See how this stacks up to the rest of the Hospitality industry.

Approach 1: Royal Caribbean Cruises Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth today by projecting its future cash flows and discounting them back to the present using an appropriate required return.

For Royal Caribbean Cruises, the model starts with last twelve months Free Cash Flow of about $2.2 billion and uses analyst forecasts for the next several years, then extends those trends further into the future. By 2029, Free Cash Flow is projected to reach roughly $6.2 billion, and longer term estimates rise toward about $10.2 billion by 2035 as the business scales capacity and improves efficiency.

Aggregating and discounting these projected cash flows under a 2 Stage Free Cash Flow to Equity framework results in an estimated intrinsic value of about $431 per share. Compared with the recent share price around $266, the DCF indicates the stock is approximately 38.4% undervalued based on this long term cash generation analysis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Royal Caribbean Cruises is undervalued by 38.4%. Track this in your watchlist or portfolio, or discover 908 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Royal Caribbean Cruises.

Approach 2: Royal Caribbean Cruises Price vs Earnings

For profitable companies like Royal Caribbean Cruises, the price-to-earnings ratio is a useful way to gauge valuation because it directly links the share price to the earnings that ultimately support it. A higher PE ratio is usually justified when investors expect faster growth or see the business as lower risk, while slower growth or higher uncertainty tends to deserve a lower, more conservative multiple.

Royal Caribbean currently trades on a PE of about 17.8x, which is below both the broader hospitality industry average of roughly 21.2x and the peer group average of around 27.2x. Simply Wall St also calculates a proprietary Fair Ratio of 28.9x, which reflects what PE the market might typically pay for a company with Royal Caribbean s earnings growth profile, profitability, industry positioning, size and risk characteristics.

This Fair Ratio is more tailored than a simple comparison with peers or the sector because it adjusts for the company s specific growth outlook, margins, risk factors and market cap rather than assuming all cruise and hospitality stocks deserve the same multiple. With the stock trading at 17.8x versus a Fair Ratio of 28.9x, Royal Caribbean screens as meaningfully undervalued on this earnings-based lens.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Royal Caribbean Cruises Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple framework that lets you write the story behind your numbers by connecting your view of Royal Caribbean Cruises future revenues, earnings and margins to a forecast and then to a fair value estimate. A Narrative on Simply Wall St, available to millions of investors on the Community page, turns your perspective into a structured set of assumptions, automatically calculates a Fair Value, and then compares it to the current share price to help you decide whether the stock looks like a buy, a hold or a sell. Because Narratives update dynamically when new information arrives, such as earnings releases or major news, your fair value view stays current without you having to rebuild your analysis from scratch. For example, one bullish Royal Caribbean Cruises Narrative might lean toward the high analyst target of about $420 based on strong yield growth and premium demand, while a more cautious Narrative could sit closer to the low target near $218, reflecting worries about weaker consumer spending and pricing power.

Do you think there's more to the story for Royal Caribbean Cruises? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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