Is Royal Caribbean Shares Poised for a Rebound After Their 19% Slide?

• If you’ve ever wondered whether Royal Caribbean Cruises is still a good value after its wild run, you’re not alone. Let’s break down what’s really behind the numbers and whether now could be an opportunity.
• After a rollercoaster stretch, Royal Caribbean’s stock is up an impressive 10.7% year-to-date and 16.3% over the last year. However, it has taken a sharp turn recently, dipping 10.9% in just the past week and 19.4% over the last month.
• This slide has grabbed attention, especially as the travel sector faces both persistent demand and new fears about rising costs, higher interest rates, and fluctuating consumer sentiment. Headlines around industry booking trends and macroeconomic shifts have kept investors on their toes in the past several weeks.
• Despite the recent turbulence, Royal Caribbean scores a perfect 6/6 on our undervaluation checks, which is rare for a company of this size. Let’s dive into the valuation methods that analysts typically use, and stay tuned for a smarter, more holistic way to judge value at the end of the article.

Royal Caribbean Cruises delivered 16.3% 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

The Discounted Cash Flow (DCF) model estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today’s dollars, reflecting the present value of those expected earnings. It is a widely used approach for businesses like Royal Caribbean Cruises, where large and relatively predictable cash flows are key to evaluation.

For Royal Caribbean Cruises, the latest reported Free Cash Flow sits at $2.18 Billion. Analysts have projected this to continue growing, with an estimate of $6.22 Billion by 2029. Notably, the first five years of forecasts are based on multiple analyst estimates, while projections beyond that are extrapolated by Simply Wall St's in-house models. These estimates show consistent growth in annual cash flows, emphasizing the company’s strong earnings potential.

When these future cash flows are discounted back to the present, the model delivers an intrinsic value of $427.50 per share. Comparing that to the current market price, this valuation model suggests the stock is trading at a 40.7% discount to its intrinsic value, which points to considerable undervaluation.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Royal Caribbean Cruises is undervalued by 40.7%. Track this in your watchlist or portfolio, or discover 861 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 (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies because it directly relates a company’s share price to its earnings. For Royal Caribbean Cruises, which has returned to strong profitability, this method gives investors a simple way to gauge how much the market is willing to pay for a dollar of current earnings.

Growth expectations and risk play a big role in determining what a “normal” or “fair” PE ratio should be. Typically, companies expected to grow faster or with lower risk profiles can justify higher PE multiples. Slow growers or riskier firms usually trade on lower ones.

Royal Caribbean Cruises is currently trading on a PE ratio of 17x, which is noticeably below its peer average of 27x and the broader hospitality industry average of 21x. At first glance, this could suggest undervaluation. However, benchmarks like peer and industry averages do not fully capture a company’s future prospects, profitability, or unique business risks.

This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio, calculated here at 29x, accounts for a company’s specific earnings growth outlook, industry context, profit margins, market capitalization, and risk profile, offering a more complete picture than simple averages.

Comparing Royal Caribbean’s current PE ratio of 17x to its Fair Ratio of 29x indicates that the stock is significantly undervalued on this metric, even after recent market volatility.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1407 companies where insiders are betting big on explosive growth.

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's introduce you to Narratives. A Narrative is your personalized story about a company, where you connect your view of Royal Caribbean Cruises, such as its growth prospects, profit margins, and upcoming catalysts, to a tailored forecast of future revenue, earnings, and ultimately, a fair value for its shares.

Narratives bridge the gap between the numbers and your investment thesis by linking the company’s journey to updated financial projections and a fair value estimate, making it easy to turn your ideas into actionable investment decisions. Simply Wall St’s Community page, used by millions, lets you quickly create and refine Narratives, compare your fair value to today’s share price, and see instantly whether it might be time to buy or sell.

The power of Narratives is that they are dynamic, updating automatically when news or earnings arrive, so your verdict stays relevant. For example, with Royal Caribbean Cruises, some investors' Narratives put fair value as high as $420 per share while others see it as low as $218, reflecting different expectations around growth, margins, and future risks. Narratives empower you to make smarter, more confident decisions by weighing your unique insights against the crowd.

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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