Please ensure Javascript is enabled for purposes of website accessibility

Why Royal Caribbean Cruises Ltd Shares Have Plunged in 2016

By Travis Hoium - Feb 5, 2016 at 9:19AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Investor's expectations for growth in the cruise industry may have gotten out of hand.

What: Shares of Royal Caribbean Cruises Ltd (RCL -7.03%) fell 19% in January according to S&P Capital IQ data, and the plunge hasn't stopped with shares now down 27% since the end of 2015.

So what: The investing theme in January was concern that the global economy would slow down, particularly in China, where much of the world's growth has come from in the last decade. As those fears spread, investors sold hospitality stocks like Royal Caribbean on concerns that revenue and earnings wouldn't meet expectations in future years.

This was confirmed on Tuesday, when management said that 2016 earnings would be $5.90 to $6.10 per share, well below the $6.27 per-share figure that Wall Street analysts expected. But that's also an increase from the $4.83 that the company earned in 2015.  

Now what: This looks like a case of expectations just getting out of hand for Royal Caribbean Cruises. The company has had a lot of tailwinds the past few years as the economy improved, discretionary spending increased, and fuel costs plunged. But growth is now slowing, and expectations will have to adjust, as well.

While expectations may have been too high at the end of 2015, it looks like they may have swung too low now. Shares trade at just 12 times the midpoint of expected 2016 earnings, and those earnings are growing. I think that's a decent value for long-term investors, even if consumer spending slows.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
$33.75 (-7.03%) $-2.55

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.