There's nothing wrong with riding coattails, though perhaps in Steiner Leisure's (NASDAQ:STNR) case, those should be robe tails. As the provider of spa services on many of the world's leading cruise lines, it's easy to see how the turnaround in the seaworthy travel sector will make Steiner equally buoyant.
Last night, the company saw its second-quarter profits float 53% higher for a $0.49-per-share showing, with revenues up a healthy 26%. Watching earnings grow twice as fast as the top line is sweet. Understanding why this is the best way to play the cruise sector is even sweeter.
From Carnival (NYSE:CCL) to Royal Caribbean (NYSE:RCL) to the Carnival PLC (NYSE:CUK) Princess line, Steiner is there -- ready, willing, and able to dish out the Shiatsu massage, administer an algae wrap, or load up the tub for a jasmine flower bath. I'm probably the last person you would find in a spa, but I can vouch for the company's services. On my last two Disney (NYSE:DIS) cruises, I haven't been able to refuse my wife booking us for romantic Surial baths for two.
But you don't need a freshly manicured finger to point out the many reasons why business is booming for Steiner. While it also runs a few land spas and schools, it has seen its sea fleet grow from 100 to 109 ships over the past year. Don't lose me here because the exponential payoff is worth it. Whether it's the fact that disposable income is growing or that I'm hearing way too much of the word "metrosexual" these days, demand for spa services at sea is growing even faster than Steiner's fleet. It has grown its staff by 13% over the past year.
So, if Steiner is now featured on 9% more boats and demand is fueling a 13% spike in spa employees and their productivity has improved to the point where revenues climbed by 26%, where's the flaw?
It gets even better once you dabble in the valuation metrics. Carnival and Royal Caribbean are great companies, but they are trading for roughly 25 times trailing earnings. As of last night's close, Steiner was fetching just 13 times trailing earnings. The disparity of value can't last for too long. Isn't the opulence and pampering that Steiner serves the thickest cut of the cruise industry's rebirth? It can also grow faster than the industry by adding new lines as clients, like it did last month when it inked a long-term deal with NCL.
It's not elementary, my dear Watson. It's hydrotherapy.
Longtime Fool contributor Rick Munarriz has taken advantage of his Miami home to cruise cheaply on just about all of the major lines. He owns shares in Disney.
Pilates of the Caribbean? What do you think of cruising spa services? Which boats are worth sailing on? Have any cruising horror stories to share? All this and more -- in the Favorite Travel Spots/Tips discussion board. Only on Fool.com.
