Royal Caribbean Cruises Shares Plunged: What You Need to Know

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cruise ship operator Royal Caribbean Cruises (NYSE: RCL  ) have officially run aground following news that its prior accounting would need a few tweaks. The stock's subsequently down 11%.

So what: Generally speaking, nothing good ever comes from the phrase, "accounting error." As if Royal Caribbean didn't have enough to worry about, with its businesses already affected by unrest in the Mediterranean and higher fuel costs, it can now add a $0.10 charge related to the way it accounted for interest expenses for amortizing finance fees. Sounds complicated, doesn't it? Even worse, the company attempted to slide another $0.10 reduction in full-year earnings under the radar in conjunction with this press release, completely unrelated to the accounting snafu.

Now what: I'm not a fan of cruise ship companies. Rising fuel costs are ravaging this industry, much like the airline sector I highlighted last week. But while earnings warnings are one thing, accounting irregularities are in a completely different league. While I'm not questioning Royal Caribbean's fiduciary responsibilities, I feel that shareholders will be even more cautious regarding this company now. Even at just 8.3 times forward earnings, I'm not even remotely tempted to consider Royal Caribbean a buy at this point in time.

Craving more input? Add Royal Caribbean Cruises to your watchlist!

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. 

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10/25/2016 4:02 PM
RCL $70.63 Up +0.28 +0.40%
Royal Caribbean CAPS Rating: ***