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Some Investors Should Buy Royal Caribbean Stock

It’s no secret that the novel coronavirus has pummeled the U.S. travel industry, with cruise lines like Royal Caribbean (NYSE:RCL) suffering serious setbacks. RCL stock has rebounded somewhat from the devastating lows it reached earlier this year. And the stock is drawing interest from investors.

Royal Caribbean (RCL) ship Allure of the Seas, docked.
Source: Laszlo Halasi / Shutterstock.com

This interest has increased as the pandemic has gone on. The initial news reports weren’t positive for travel companies. Dying passengers stranded along with ailing, fearful travelers aboard their massive floating hotels made for riveting headlines.

Countries wouldn’t let ships dock or if they did permit docking, the passengers had to stay aboard their ships as if they were radioactive or simply unwelcome statistics.

Eventually, other aspects of the emerging pandemic commandeered attention, but the sudden halt to travel took a toll on Royal Caribbean and others.

The company is getting attention from investors now and not just from bargain hunters.

What’s Up With RCL Stock?

Florida-based Royal Caribbean Group was formed in 1997 when Royal Caribbean merged with Celebrity Cruises. It is considered the second-largest cruise line. The original Royal Caribbean was founded in 1968 in Norway.

The shares of RCL stock have been on a wild ride, ranging from a low in the last year of $19.25 all the way to a peak of $135.32. Boy, that 52-week high seems towering now.

Currently, RCL stock is trading at just over half of that high, changing hands for around $69 per share.

Royal Caribbean docked its cruise ships in the middle of March. Cruise companies have faced the pandemic’s blow without the support from the U.S. federal government that the airlines received.

In Royal Caribbean’s case, its executives have managed the situation smoothly overall. They have trimmed costs, and the firm’s cash position is strong. The company has plenty of liquidity for now to cover its cash burn of about $250 million to $290 million per month.

Last month, Royal Caribbean reported its second-quarter earnings. Since its cruise ships are not ferrying paying passengers, a loss was expected. However, the company reported an adjusted loss per share of $6.13, which was more than the $4.71 loss that analysts, on average, had anticipated.

A Look Ahead

As a cruise-ship company whose ships are docked, it’s obvious that Royal Caribbean – and RCL stock – won’t perform very well until the company’s ships resume sailing. Less clear, however, is when that resumption will occur. The U.S. Centers for Disease Control and Prevention (CDC) has blocked cruise ships from sailing.

Nevertheless, a significant number of customers are booking cruises on Royal Caribbean for 2021. The amount of bookings has pleasantly surprised company officials, CEO Richard Fain said recently.

“I think we are seeing that there’s pent-up demand,” Fain said in an interview with CNBC. “People are frustrated being at home and being isolated.”

The company’s CFO, Jason Liberty, also told CNBC that the company’s 2021 trips to Alaska, the Caribbean and Europe were drawing customers. Vacationers whose trips were put on hold by the pandemic and then rescheduled were not the only ones buying tickets.

“More than 60% of our bookings since mid-May have been new bookings,” he said last month.

When Will Royal Caribbean Get to Sail?

As we all lack a guidepost to follow during this pandemic, it is hard to predict when Royal Caribbean will be allowed to resume cruising. One indication of this uncertainty is a cautionary statement to investors issued by the company.

According to Royal Caribbean, “many of these risks are currently heightened by and will continue to be heightened by, or in the future heightened by, the COVID-19 pandemic. It is not possible to predict or identify all such risks.”

Royal Caribbean and Norwegian Cruise Line Holdings also have announced steps they propose taking once sailing resumes.

Recently, the CDC’s no-sail order was extended to Oct. 31. There are indications that the order could be renewed  again. The failure to bring the pandemic under control in the U.S. means the uncertainty facing Royal Caribbean will continue.

The Bottom Line

RCL stock has recovered handsomely from the depths of its selloff.

Investors who bravely bought shares of Royal Caribbean in the wake of its huge decline have earned the right to sell their shares now and take some profit, particularly if they want to put that money to work elsewhere. Taking profits now also makes sense because there’s no sign of the pandemic coming under control in the U.S. And winter is coming.

However, I agree with those who contend that RCL stock can rebound in the future. This will become apparent once the company is allowed to resume sailing after effective treatments and vaccines for Covid-19 are approved.

For risk-tolerant, longer-term investors, RCL stock is a buy.

On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.

Article printed from InvestorPlace Media, https://investorplace.com/2020/10/bold-buy-rcl-stock-cruise/.

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