During the six-month period between January and June, the S&P 500 tumbled hard into bear market territory, only to rally higher since. While the popular index is still down for the year, such wild gyrations can be unsettling for investors and make them want to sit on the sidelines until the dust settles. That would be a mistake, because if you're out of the market when the rebound begins, your portfolio's performance will suffer. 

Over the past two decades, there have been a number of market crashes -- from the dot-com bubble of the early 2000s to the pandemic outbreak of 2020, and the financial and housing markets collapse in between -- yet through it all the stock market returns averaged 9.5% a year. Had you sold off your stocks at any time during those crises and you missed the 10 best days in the market, your returns would be nearly cut in half to just 5.3% a year. 

Cruise ship at night.

Image source: Getty Images.

So let's take a look at Royal Caribbean Cruises (RCL -0.53%), the cruise ship operator whose stock has been in Davy Jones' locker since the COVID-19 pandemic started and has had difficulty building steam since.

In the 10-year period before the global crisis, Royal Caribbean stock returned more than 420% compared to 190% gain by the S&P 500, an amazing run-up during a big bull market. Since then, though, it lost two-thirds of its value and is down almost 40% this year alone. Let's see if investors will remain lost at sea with this stock, or if this one-time travel and tourism star can go full steam ahead once more.

Taking on water

It's clear why Royal Caribbean and peers Carnival (NYSE: CCL)(NYSE: CUK) and Norwegian Cruise Line Holdings (NYSE: NCLH) are distressed stocks: Their industry, more than virtually any other, was impaired by government bans on sailing to contain further COVID outbreaks. Even after cruise companies adopted stringent safety protocols, the U.S. Centers for Disease Control and Prevention dragged its feet on approving a return to sailing until Florida sued the agency to get it to act. 

But even getting back into open waters hasn't been enough to lift cruise ship stocks. The rising tide of a reopened economy still finds Royal Caribbean and the others stranded on the shores of missed opportunity. 

That's partly a result of cruise operators still not operating at full capacity. Royal Caribbean's second-quarter load factor, or its passenger occupancy rate, stood at 82% overall as the company suffered setbacks first from the omicron variant outbreak and then Russia's invasion of Ukraine, since one-third of its capacity is for European itineraries. 

The others aren't doing any better. Carnival's occupancy rate was 69% in the quarter while Norwegian's stood at 65%. 

A heavy debt anchor

The cruise operators are also laboring under a heavy debt load. While they raised enormous sums of money during the no-sail portion of the pandemic to remain afloat and their balance sheets are still flush with cash, they took on a lot of debt to do so.

Royal Caribbean has more than $17.7 billion in long-term debt and $2.1 billion in cash. Carnival, on the other hand, has $29.3 billion in debt and $7.2 billion in cash and short-term investments, while Norwegian, which is the smallest cruise operator by number of ships and market cap, has $12.2 billion in debt and $1.9 billion in cash.

None of the operators is having difficulty at the moment servicing the debt, but it remains a drain on performance. Royal Caribbean spends more than $300 million a quarter on interest payments, nearly equivalent to its entire net loss in the second quarter. 

Calmer seas ahead

While Royal Caribbean is going through rough waters still, there's good reason to believe there will be plenty of smooth sailing in the years to come.

First, demand for cruises remains high with booking volumes significantly higher than before the pandemic. The cruise operator is also expecting its load factor to hit 95% in the third quarter and reach triple digits thereafter (occupancy rates over 100% mean three or more people stayed in a cabin). Moreover, bookings are being made at higher prices than before the pandemic and Royal Caribbean has more than enough liquidity available to meet its operating needs.

The cruise line stock expects to return to profitability on an adjusted basis in the third quarter. And with shares trading at less than 13 times next year's estimated earnings, Royal Caribbean Cruises looks like a ship worth sailing on.