We Think That There Are Issues Underlying Royal Caribbean Cruises' (NYSE:RCL) Earnings

Unsurprisingly, Royal Caribbean Cruises Ltd.'s (NYSE:RCL) stock price was strong on the back of its healthy earnings report. However, our analysis suggests that shareholders may be missing some factors that indicate the earnings result was not as good as it looked.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. In fact, Royal Caribbean Cruises increased the number of shares on issue by 5.5% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Royal Caribbean Cruises' EPS by clicking here.

A Look At The Impact Of Royal Caribbean Cruises' Dilution On Its Earnings Per Share (EPS)

Royal Caribbean Cruises was losing money three years ago. The good news is that profit was up 54% in the last twelve months. On the other hand, earnings per share are only up 50% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So Royal Caribbean Cruises shareholders will want to see that EPS figure continue to increase. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Royal Caribbean Cruises' Profit Performance

Each Royal Caribbean Cruises share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Royal Caribbean Cruises' statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 50% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 2 warning signs for Royal Caribbean Cruises you should know about.

This note has only looked at a single factor that sheds light on the nature of Royal Caribbean Cruises' profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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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.