Cruise stocks are making a comeback and Royal Caribbean (NYSE:RCL) refuses to miss out. RCL stock is up more than 150% from the lows as buyers continue to bid shares higher.
Despite that insane rally, the stock has not even reclaimed the 38.2% retracement on the charts. Put in plain English, RCL stock has not yet recouped more than about one-third of its monstrous decline.
As such, shares are still down about 56% from the 2020 highs despite such an impressive rebound. That creates mixed emotions among investors. On the one hand, that leads many to believe that more upside is not only possible, but likely.
On the other hand, if a stock has rallied 150% and has only recouped one-third of its losses, how bad is the situation?
Some companies, like Microsoft (NASDAQ:MSFT) and Twilio (NYSE:TWLO) are seeing strong results despite — or in the latter’s case, because of — the novel coronavirus. In this strange environment, companies are lucky if 2020 is simply a throwaway year. That is, relatively flat growth and still reporting a profit.
For many companies though, like the airlines and cruise operators, it will be awhile before business gets back to pre-coronavirus levels.
A Closer Look at Royal Caribbean
Three months ago, RCL stock was forecast to earn $10.13 per share in fiscal 2020. That estimate fell to a profit of $4.24 per share two months ago and a loss of $5.41 per share one month ago. Currently, estimates call for a whopping loss of $12.55 per share this year.
It’s not worth getting into estimates for 2021 because we still don’t know how 2020 will play out or whether a second wave of Covid-19 will sweep across the world. Current estimates call for another loss — although a much less severe one, at -$1.27 per share — for Royal Caribbean. The point, however, is that profit will not return to pre-coronavirus levels for a while.
All the while, RCL stock suffered greatly. Cash flows dove as revenue shut off. As expenses piled up, the enormous drag on cash brought liquidity concerns to the forefront. The company has since raised capital, pricing more than $3.3 billion in notes with a double-digit coupon.
That said, the company has said 2021 bookings are steady and within a normal range versus prior years. Although, it could be argued that those bookings are from 2020 cancellations.
Non-current assets fell from $29.1 billion to $28.85 billion in the most recent quarter versus the prior quarter. However, non-current liabilities jumped roughly 40% from $10.2 billion to $14.2 billion. With the quarter ending March 31, look for that figure to swell even further.
From a valuation perspective, it’s difficult to evaluate RCL stock. So, what do the technicals say?
Trading RCL Stock
Click to Enlarge
The charts actually look pretty favorable at the moment. Of course, investors have to block out the fact that the stock tumbled 85% from peak to trough, an event that took just two months to play out.
Resistance has been $48 to $50 since that massive pullback, as has the 23.6% retracement. Last week, RCL stock reclaimed these marks, then found them as support after a slight dip.
With its series of higher lows, trading above its key moving averages and finding support at prior resistance, it’s clear that bulls are in control at the moment.
On a continued move higher, let’s see if $63 is possible. There it finds the 38.2% retracement and will fill the last remaining gap from March. Should shares really gain momentum, the $75 to $80 area could be in play.
On the downside, look for RCL stock to hold $48 to $50 and the 20-day moving average. Below both could put a larger decline in play.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
