Apparently, one of the primary drivers for a company is how it will perform over the next couple of months. Shares of Royal Caribbean
In all fairness, the reduction in near-term expectations is worrisome, because the numbers are so far below analysts' projections. But for those of us who believe predicting short-term fluctuations in a company's fortunes is about as easy as predicting when the Chicago Cubs will next win the World Series, what's important is the long-term outlook for a company.
As a shareholder in both Royal Caribbean and its larger peer Carnival Cruises
Royal has been able to grow sales, earnings, and cash flow close to 10% on average over the past five years. I would characterize this growth as unspectacular but respectable, and operating cash flow exceeds reported net income by a wide margin, primarily because the cruise business is very capital-intensive and has high levels of depreciation and amortization.
I do see some drawbacks for Royal, including a high amount of debt -- something that Carnival hasn't escaped, either, though that company posts much higher net margins. Both are also subject to high fuel costs, which they saw in 2006. In addition, the hurricanes prevalent in the core Caribbean markets can wreak havoc on bookings and cruise outings.
Royal currently trades at 14 times forward earnings, very reasonable given the growth prospects, and has a 1.3% dividend yield. The stock is up almost 35% from lows reached during the overall market malaise and hurricane worries of late last summer, but it is still worth keeping an eye on. In my experience, short-term worries can prove to be solid entry points into firms with bright long-term prospects.
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Fool contributor Ryan Fuhrmann is long shares of Carnival and Royal Caribbean, but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.