Source: Royal Caribbean.

Following adequate performances over the winter, Royal Caribbean (NYSE:RCL) came back this quarter and posted incredible second-quarter earnings, well ahead of analyst estimates, and beyond that of major competitor Carnival Cruise Lines (NYSE:CCL). Following this latest release, shares of Royal Caribbean have cruised to record highs. After this price surge, is there still reason for investors to get in now?

Royal Caribbean Q2 highlights and forecast updates:

  • Net income of $146.7 million, or $0.66 per share, U.S. up nearly five times that of 2013.
  • Net yields were up 2.6%.
  • Cruise costs (excluding fuel) were down 4.7%.
  • Adjusted EPS by year-end is expected to be in the range of $3.40 to $3.50 per share, a $0.10 increase from previous guidance.
  • Net yields are expected to increase 2% to 3% in 2014.

The company's net income in Q2 of this year is up five times over that of the same period in 2013. With EPS of $0.66 a share, well ahead of analyst estimates of $0.53 a share, Royal Caribbean should be congratulated on its ability to turn revenue into profit this quarter. With increased wins in Europe and China, and effective cost-cutting initiatives, the company was able to make huge gains during the first half of this year that will likely carry on throughout the year.

But the company itself is not just getting to the end of 2014 with strong growth. One of the most exciting parts of this earnings is the company's stated mission to double 2014 EPS by 2017. Calling it the Double-Double Program, the company is using 2014 momentum to drive more growth during the next three years. Chief Executive Officer Richard Fain said, "The Double-Double Program sets demanding but realistic targets, against which we will measure our continued progress."

Looking back, and looking forward
The cruise line industry's revenues, as a whole, have risen at 7.9% per year since 1980, with 20.3 million passengers having embarked on a cruise in 2013. The World Travel Market, a research group, expects growth to continue well into the future. This has certainly been true for the growth of Royal Caribbean and, at the start of 2014, Royal Caribbean shares were already up more than 70% from two years prior.

The company has profited in the past by deploying industry-leading cruise ships, and 2014 will be no exception. Royal Caribbean's soon-to-be-operating Quantum of the Sea is what investors should be looking at to drive growth at the end of 2014 and beyond. The ship boasts indoor skydiving, bumper cars, a roller skating rink, and an arm with an attached passenger holding area that extends from the top of the ship to give passengers a hovering view of passing landscapes. This amazing ship will be the most exciting the company has set to sail yet.

Royal Caribbean's Quantum of the Seas. Source: Royal Caribbean.

RCL vs. Carnival
Carnival, while also posting a great Q2, is not currently on the same level as Royal Caribbean. During the company's 2013 earnings release, it was able to beat its own warnings of revenue drops for the fourth quarter of 2013, but then warned of net losses in the first half of 2014 due to rising advertising expenditures and other operating costs.

Source: Carnival Cruise Lines

So far, the company has done much better than it expected at the start of this year, posting Q2 revenue gains of more than 4% year over year and, more important, an 158% increase in the company's bottom line during the same period in 2013. If Carnival was able to beat its own outlook for this half of the year, then the second half -- the time at which Q1 and Q2 work is supposed to pay off -- may still be very good.

Carnival is now slightly more expensive than Royal Caribbean at a current P/E multiple of 24.5, and an estimated future P/E of 21.5. Royal Caribbean, at 23.5 times and 17.8 times, respectively, looks to be a better value currently, and even more so on expected future earnings. Royal Caribbean's incredible profitable Q2 and future plans for doubling its EPS by 2017 can't be ignored, and right now, Royal Caribbean still looks like a better bet than Carnival.

Foolish takeaway: Cruising to new heights, or too late to catch the wave?
Both Royal Caribbean and Carnival have shown huge gains in the last few years, and especially during this recent quarter. However, the five times growth in net income during last year that Royal Caribbean posted makes it the undisputed winner right now. But with shares up to record highs on the Q2 earnings, is there still room to gain from Royal Caribbean, or are profits peaking?

With growth in Europe and China, cost-cutting efficiencies, and especially the christening of the much anticipated Quantum of the Seas this fall, it appears there's still plenty of room for growth with Royal Caribbean. As a long-term investor, if you're confident that the company can make its Double-Double program successful by 2017, getting in now could still be very profitable.