Royal Caribbean (RCL) Deep Dive: Why I Locked a 90% Gain—and Why the Cruise Stock’s Upside Is Now Limited
A data-packed deep dive into RCL’s post-COVID surge, stretched valuation, and insider selling—explaining why I stepped off the ship at $211.
Taking Profits After a Big Cruise Rally
On April 29, I sent out a trader alert to close our Royal Caribbean Group (NYSE: RCL 0.00%↑ ) position at $211. At the time, the stock had nearly doubled from our entry price, and I felt it was prudent to lock in gains. As of today, RCL has climbed further to around $247 per share, buoyed by short-term optimism over easing U.S.-China tariff tensions (a recent trade truce that lifted travel and leisure stocks). In this deep-dive, I’ll walk you through my original bull thesis.
It’s always tempting to regret selling before an extra pop, but let me be clear: I still see significant downside risk from here, which is exactly why I preferred to exit when I did. In this deep dive, I’ll walk you through my original bull thesis, Royal Caribbean’s business model, its latest financials and outlook, and why the risk/reward looks far less attractive now. Consider this a friendly, plain-English voyage through the analysis, just like our usual Beating The Tide style of stock analysis and deep dives.
Sit back, relax, and take a sip of that daiquiri — we’re about to dive deep into the numbers, strategy, and signals that matter most.
Table of Contents:
Why We Boarded RCL at $110 – Deep-Dive Look at an Industry Leader’s Unique Advantages
Growth Strategy and Unit Economics: Bigger Ships, Bigger Moats
Why We Boarded RCL at $110 – Deep-Dive Look at an Industry Leader’s Unique Advantages
Let’s rewind to July 2023, when I bought RCL at $110 per share. RCL’s industry leadership and unique assets in the cruise sector caught my eye back then. This is a company with world-class cruise brands, state-of-the-art ships, and exclusive private destinations that set it apart from competitors. In other words, RCL isn’t just any cruise line — it’s the top dog in a growing industry, with a portfolio of offerings others can’t easily match.
A big part of my initial thesis was Royal Caribbean’s “long-term EPS growth algorithm,” so to speak. Management had laid out ambitious financial targets for the post-pandemic recovery, and I believed they were achievable. In fact, in late 2022 RCL announced a “Trifecta” plan targeting adjusted EPS of at least $10 by 2025 (along with other goals like $100 EBITDA per passenger and ~13% ROIC). This would have been a lofty goal — except RCL blew past it 18 months ahead of schedule as cruise demand roared back! By mid-2024, the company had already hit $11.80 in adjusted EPS for 2024, and ROIC reached 16%, exceeding the Trifecta targets.
That kind of performance confirmed my hunch: Royal Caribbean had the right formula to ride the travel rebound.
Equally important, RCL owns private island destinations like Perfect Day at CocoCay in the Bahamas (and others in development) that give it a competitive edge. These private islands act as exclusive playgrounds for RCL’s guests — and profit centers for the company. CEO Jason Liberty has emphasized how these “exclusive destinations” and innovative ships drive guest satisfaction and pricing power. In simpler terms, happy cruisers pay more, and RCL has unique ways to keep them happy. All these factors — a best-in-class operator with unique assets and a clear runway for earnings growth — formed the crux of why I boarded RCL stock in 2023.
How Royal Caribbean Makes Money (Explained Simply)
Before we dive into the latest numbers, let’s quickly explain how Royal Caribbean makes money, in case you’re not familiar with cruise economics.
Ticket Sales (Passenger Fare): This is the price you pay to book a cruise vacation. It’s like buying a ticket to a floating hotel for a week. RCL earns a big chunk of revenue from selling these cruise tickets to millions of passengers each year. In 2024, strong demand allowed RCL to push ticket prices to record highs (net yields on tickets jumped over 5%), meaning they’re earning more per passenger than before.
Onboard Purchases: Once you’re on the ship, the spending fun begins. Passengers shell out for things like fancy drinks, specialty dining, spa treatments, casino games, shore excursions, and souvenirs. This onboard revenue is highly profitable for RCL — think of it as the theme park snacks and souvenirs equivalent. In recent quarters, onboard spending has been outpacing prior years as people treat themselves more on vacation. Every extra cocktail or spa massage you buy on the ship pads RCL’s bottom line.
Private Destinations (Excursions & Amenities): Royal Caribbean’s secret sauce is its private island destinations such as Perfect Day at CocoCay.
When a cruise stops at CocoCay, guests can pay extra for water park admission, zip-lines, cabanas, and other activities — and nearly all that revenue goes straight to Royal Caribbean (since they own the island!). These unique experiences not only delight guests but also boost RCL’s profitability. The company is doubling down on this strategy with new private beach club projects (e.g. Royal Beach Club in Nassau and “Perfect Day” islands in other locales) to give guests more reasons to cruise with RCL.
In short, RCL makes money by selling you a cruise and then selling you stuff to do on the cruise. First, they get you on the ship, then they give you plenty of opportunities to swipe your card while you’re having fun. It’s a tried-and-true model that turns vacations into cash for the company.
Riding the Wave: Post-Pandemic Boom and 2025 Outlook
Royal Caribbean’s business has been firing on all cylinders in the past year. The post-pandemic “revenge travel” boom led to record bookings and fuller ships than ever. To put some numbers on it: in the first quarter of 2025, RCL’s ships sailed at 109% load factor (yes, more than every cabin filled, thanks to third/fourth guests in rooms). If you’ve been on a cruise lately, you know they’re packed. RCL delivered vacations to 2.2 million guests in Q1 alone, a 9% increase y/y, and customers paid higher prices too — net yields were up about 5.6% (constant currency) vs. the prior year. This combination of full ships + higher pricing led to fantastic financial results.
Q1 of 2025 came in much stronger than expected. Adjusted EPS was $2.71, handily beating guidance by $0.18. Revenue of $4.0 billion was about 7% higher than a year ago, even with slightly fewer ships operating in Asia (China’s reopening has been gradual).
Strong last-minute demand (people booking close to the sail date) and disciplined cost control drove the earnings beat. Management said this past WAVE season (the big booking season early in the year) was the best in company history. As a result, RCL raised its full-year 2025 profit guidance: the company now expects $14.55 to $15.55 in adjusted EPS for 2025 (from $14.35 to $14.65 guided in Q4 2024), which would be ~28% growth over 2024’s earnings.
To put that in perspective, if they hit the midpoint of $15, Royal Caribbean’s profits would be about 50% higher than the last pre-pandemic year (2019) — a testament to how much the business has scaled up.
Just as importantly, 2025’s revenue is largely “in the bag.” By spring, management noted that the booked position for 2025 was very strong, at higher prices (APDs) than last year. In plain English: most of the cruise cabins for this year are already sold, and sold at premium rates. This visibility is a luxury that many other industries don’t have — RCL can predict its revenue fairly confidently because people book cruises months or even years in advance. The company is also seeing no slowdown in onboard spending or pre-cruise purchases (like drink packages, excursions, etc.), which are continuing to outpace prior years’ levels. All of this underpins management’s optimism for hitting that ~$15 EPS target in 2025.
Royal Caribbean’s growth outlook remains bright in the near term. The fleet is still expanding — capacity will be up about 5.5% in 2025 as new ships come online. For example, the brand-new Icon of the Seas (the world’s largest cruise ship) is now sailing, and Utopia of the Seas (another mega-ship) will have its first full year of operation. Additionally, RCL is launching a new ship called Star of the Seas in late 2025, and its Celebrity Cruises brand is adding Celebrity Ascent (an Edge-class ship) this year. These modern ships are not only bigger (meaning more passengers = more revenue) but also more efficient and loaded with upcharge opportunities (think: more specialty dining, bigger spas, fanciest suites, etc.). New hardware plus strong demand equals a recipe for continued revenue and earnings growth, at least in the short run.
With that said, it’s not all smooth sailing on the horizon — and this is where my cautious stance comes in. RCL’s own CEO acknowledges they are “navigating the complexities of the current macroeconomic landscape” even as they post record results.
Let’s discuss some of those risks and why I’m not as enthusiastic about buying more RCL at current prices.
Growth Strategy and Unit Economics: Bigger Ships, Bigger Moats
Royal Caribbean’s growth strategy can be summed up in a couple of phrases: build amazing ships, create exclusive experiences, and operate at scale. The company plows a lot of capital into new ships, but those investments have been paying off. Each new ship (often costing $1+ billion to build) is like a money machine once it’s sailing full. For instance, Utopia of the Seas (delivered in 2024) can carry over 5,600 guests at a time. In a single 3-4 day cruise, that one ship can generate millions in ticket and onboard revenue. Thanks to modern design and efficient propulsion, these Oasis-class and Icon-class ships also have better unit economics — meaning the cost per passenger is lower, and margins are higher, than older, smaller ships. Royal Caribbean has stated that its recent newbuilds are yielding returns on invested capital in the mid-teens or higher, helping push the entire company ROIC to around 16% in 2024. In other words, these big ships are not vanity projects; they’re profit centers that pay for themselves in relatively short order.
Beyond the ships themselves, RCL’s private destination portfolio is a core part of its moat. Destinations like CocoCay (and upcoming projects like Royal Beach Club in the Caribbean and “Perfect Day” islands elsewhere) give Royal Caribbean a competitive advantage that is very hard to replicate. Competitors like Carnival (NYSE: CCL 0.00%↑ ) and Norwegian Cruise (NYSE: NCLH 0.00%↑ ) don’t have anything quite on the scale of CocoCay — an island with huge pools, water parks, beaches, and dining, purely for their guests. These exclusive spots not only differentiate the cruise experience (why choose another line when RCL offers a private island party?) but also allow RCL to capture spending that would otherwise go to third parties. It’s a vertically integrated vacation ecosystem: RCL provides the ship, the destination, and the activities, and pockets money at each step.
Let’s also talk about barriers to entry in the cruise business. It’s incredibly costly and complex to operate what Royal Caribbean does. Building a single new cruise ship can cost over a billion dollars and take 3-5 years, and you need a fleet of them to compete. You also need an entire organization for marketing, distribution, port logistics, staffing thousands of crew, complying with international regulations, and so on. There’s a reason the industry is essentially an oligopoly (Royal Caribbean, Carnival Corp, and Norwegian Cruise Line are the big three). New entrants can’t easily scale up, and smaller niche players can’t achieve the cost efficiencies the big guys can. RCL, in particular, benefits from huge economies of scale. Its massive size (carrying over 8.5 million passengers in 2024) gives it bargaining power with suppliers and shipyards, plus the financial strength to invest in innovations. (Notably, RCL’s balance sheet has improved to the point that S&P upgraded the company to investment grade in early 2025, meaning RCL can borrow at lower rates than its junk-rated peers — another competitive edge.)
All these factors — high upfront costs, scale advantages, and unique assets — act as a moat around RCL’s business. They help ensure that Royal Caribbean will likely remain one of the “last ships standing” even if the economic seas get choppy. This was part of my confidence in buying RCL back in 2023: I believed RCL had both the offensive strategy (new ships + new destinations = growth) and the defensive depth (strong brand, loyal customer base, and scale) to thrive over the long term. And indeed, the company’s execution has been stellar since then, as we’ve seen in the results.
However, even the best businesses can be bad investments at the wrong price. So now let’s turn to the risks and valuation, which ultimately drove my decision to take profits.
Risks on the Horizon: Don’t Ignore the Storm Clouds
No investment is without risks, and for a cyclical, consumer-driven company like Royal Caribbean, there are several storm clouds we should keep an eye on. Here are the key risks I’m concerned about (and why I’m not complacent about RCL at $247):
Macroeconomic Slowdown & Consumer Fatigue
Cruises are a discretionary purchase. If the economy slips into a recession or even a slowdown, consumers might tighten their belts on vacation spending. There are already murmurs of higher-for-longer interest rates and recession risks that could weigh on consumer sentiment.
RCL’s management has acknowledged taking a slightly conservative stance in guidance given macro uncertainties, which is prudent. My worry is that after a period of exuberant “make-up” vacationing, consumers could start to pull back — a kind of post-revenge-travel fatigue. If people decide to skip that pricey cruise next year due to economic pressure, RCL’s forward bookings and pricing power could hit a wall.
A cruise line has high fixed costs (those giant ships have to be staffed and maintained regardless), so even a modest dip in demand can hurt profitability significantly.
High Expectations and Execution Risk
RCL is priced for perfection right now (more on valuation soon). Management has set very lofty expectations — e.g. ~28% EPS growth this year — which leaves little room for error. Any slip-up in execution (say, cost overruns, delay in a new ship, or a weaker-than-expected Wave season next year) could lead to an outsized stock reaction.
Essentially, when a stock is priced for a rosy scenario, even “okay” results can disappoint. RCL needs to consistently hit or beat high bars from here on out to justify its stock price, which is not a guarantee.
Additionally, the recent rally on tariff news reminds us that external shocks can swing sentiment quickly — today it’s an optimistic trade truce, but tomorrow it could be a geopolitical event or health scare that dents travel.
The cruise sector is still vulnerable to policy changes and shocks (for example, resumption of student loan payments, fuel price spikes, or international travel restrictions could all dampen demand). Any such headwind could disrupt RCL’s otherwise strong long-term trajectory.
Cost Pressures (Fuel and Others)
One often overlooked risk is fuel cost — cruise ships burn a lot of fuel, and while RCL hedges some fuel, a sustained rise in oil prices can squeeze margins. In 2024, RCL benefited from lower fuel costs which helped earnings, but we can’t bank on fuel staying low forever.
Higher energy prices (or new emissions regulations) could increase operating costs. Also, labour and food costs are rising with inflation. RCL has managed well so far (Q1 2025 saw flat net cruise costs excluding fuel, showing good cost discipline), but inflationary pressures are something to monitor, as they could erode the margin gains from strong pricing. Fluctuating fuel costs and other input costs continue to pressure margins industry-wide, even if demand stays strong.
Insider Selling — A Red Flag?
While not a “business risk” per se, I do take note when insiders are aggressively selling stock. In February 2025, several top RCL executives cashed out significant shares near the stock’s highs. For example, CEO Jason Liberty sold over 58,000 shares around the $260 level (netting roughly $15 million) and CFO Naftali Holtz sold around 17,000 shares in the same window. Even the President of the Celebrity Cruises division sold some shares then.
Now, insiders might sell for many reasons (estate planning, diversification, etc.), but over $20 million of insider sales near the $260 level, right after the stock's massive run – caught my attention. It suggests that management views the stock as fairly valued around that price. While the shares now trade slightly below that level, it could indicate a natural ceiling in the near term. For me, it’s a subtle but meaningful signal that aligns with my more cautious view at current prices.
In summary, RCL faces a tug-of-war between incredible current momentum and the possibility of rough seas ahead.
This brings us to valuation, which in my view tilts the scales toward caution.
Valuation Deep Dive: The Tide Is No Longer Low
We have to ask ourselves: Is RCL stock still a bargain after its huge rally?
By almost any measure, the answer is no — the valuation is no longer cheap, either on an absolute basis or relative to peers. The table below tells the story.
RCL now trades around 15.8x forward earnings, whereas CCL is about 13.1x and NCLH about 10.9x. On an enterprise basis, RCL’s EV/EBITDA (forward) is 12.6x, compared to 8.4x-8.5x for both CCL and NCHL. RCL’s price-to-sales is 2-3 times higher than the others, and even its price-to-book is much richer. In short, investors are paying a hefty premium for RCL’s superior execution and growth — a premium that, in my view, leaves little margin for error.
It’s worth noting that back in 2023, when we bought in, RCL was actually the cheapest of the major cruise stocks on some metrics, because the market was skeptical whether cruising would fully recover.
That skepticism is long gone. Now the script has flipped: Royal Caribbean is the expensive one, and its peers look comparatively cheap.
Based on my own DCF valuation, I see fair value for RCL around $205 per share, which makes today’s $247 price look stretched. That’s roughly 20% above what I believe the fundamentals justify. By contrast, CCL and NCLH fair values of $35 and $30, respectively, suggest they are trading at about 65% of their fair value. In other words, while RCL has already done the hard work of pricing in the full recovery — and then some — its peers, though fundamentally weaker, may still have a meaningful “value gap” to close if travel demand holds up.
Could RCL’s stock keep rising? Sure — if the company keeps crushing expectations or if the travel bull market really heats up. But the upside is increasingly capped. Even using the upper end of 2025 EPS guidance ($15.55) and applying a premium 20x multiple, close to the highest RCL has ever traded, you only get a price target of $311, or about 25% upside from current levels.
But the risk/reward starts to break down quickly if the company even slightly misses expectations. Say EPS comes in at $14 instead — if the market re-rates the stock to a more cautious 10x P/E, that implies a $140 stock, or 43% downside. You can see why the potential reward no longer justifies the downside risk.
To be clear, Royal Caribbean is a fantastic company in my opinion. It has proven its resilience and even improved its competitive position through the pandemic. However, we must separate a wonderful company from a wonderful stock at the current price. At $247, I believe a lot of good news is priced in, and the risk of a correction is higher if any of those aforementioned “storm clouds” start raining on the parade. The stock has come too far, too fast — remember, it was ~$40 at the start of 2023; it’s now >6x that level in under two and a half years. Trees don’t grow to the sky, and neither do stock prices, at least not without pauses or pullbacks.
Conclusion: Time to Redeploy Capital
In closing, our Royal Caribbean journey has been a thrilling and profitable ride – roughly +90% gain from $110 to $211 in less than two years, far “beating the tide” of the broader market. I still admire RCL’s business and wouldn’t bet against its management in the long run. But investing is about odds and opportunities. At the current valuation, the odds are no longer overwhelmingly in our favour. The stock’s risk/reward has skewed toward downside risk, which is why I chose to step off the ship and take profits. By doing so, we free up capital to deploy into the next under-valued opportunity that the market is overlooking.
Remember, our strategy at Beating The Tide is to find stocks before they become consensus darlings, and to exit when the crowd has finally caught on. We did exactly that with RCL — we got in when others were hesitant, and we got out when the deck started looking a bit too stacked with rosy expectations. It’s a disciplined approach that has served us well.
Not sure where to redeploy that capital?
I’ll be releasing a trade alert soon to paid subscribers — a truly under-the-radar bargain I believe has 4x–10x multibagger potential. No AI, no luxury travel — just an “unsexy,” essential old-school business that no one’s looking at because of its size (~$250 million market cap) and industry.
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