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Why Royal Caribbean Stock Jumped 41% in August

By Demitri Kalogeropoulos – Sep 2, 2020 at 9:39AM

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Investors were happy to see the chances drop for a worst-case scenario playing out in the cruise ship industry.

What happened

Royal Caribbean (RCL -0.82%) shares outpaced a booming market in August, notching a 41% return compared to the S&P 500's 7% increase, according to data provided by S&P Global Market Intelligence.

That rally erased just a small portion of recent losses for owners of the cruise ship giant, though. The stock remains lower by nearly 50% so far in 2020.

A retired couple on a cruise.

Image source: Getty Images.

So what

August was another volatile month for Royal Caribbean and peers including Carnival (CCL -1.33%) and Norwegian Cruise Line Holdings (NCLH -1.75%). All three cruise giants reported second-quarter results that were dominated by a global pause in sailings.

In Royal Caribbean's case, that pandemic-driven stoppage resulted in a near 100% drop in Q2 revenue as losses landed at $1.6 billion, or $7.83 per share. Carnival and Norwegian Cruise Lines each announced similarly jarring results, yet all three stocks outperformed the market during the month.

Now what

Investors were nonetheless pleased to hear that Royal Caribbean has enough cash on hand to navigate through many more months of suspended operations. A few limited sailings are starting in markets like Italy, meanwhile, as the COVID-19 threat lessens in some areas around the world.

Still, while it appears that Royal Caribbean will survive this crisis, there are major questions surrounding the timing of a return to a normal operating posture for this consumer discretionary business. That's why investors might want to be cautious about buying any cruise ship company in hopes of seeing a quick and sustained stock price spike.

Demitri Kalogeropoulos owns shares of Carnival. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

Stocks Mentioned

Royal Caribbean Cruises Stock Quote
Royal Caribbean Cruises
$56.62 (-0.82%) $0.47
Carnival Corp. Stock Quote
Carnival Corp.
$8.91 (-1.33%) $0.12
Norwegian Cruise Line Stock Quote
Norwegian Cruise Line
$15.45 (-1.75%) $0.28

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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