Royal Caribbean Cruises Ltd (RCL)

Conclusion

Royal Caribbean Cruises Ltd operates cruises under the Royal Caribbean International, Celebrity Cruises and Silversea Cruises brands, with 69 ships as of 31 December 2025. At 336.98 USD on 9 November 2026, the company has a market capitalisation of 90.13 billion USD and an enterprise value of 112.45 billion USD.

The verdict is overvalued. The price-to-earnings ratio of 19.8 sits above its ten-year median of 17.3, a premium of 14.3%, and enterprise value to EBITDA of 14.8 sits above its median of 12.2, a premium of 21.2%. The fair value band runs from 137.47 to 206.21 USD with a midpoint of 171.84 USD, a margin of safety of -49.0%. The DCF gives 81.68 USD per share, and the fair value from historical multiples is 262.00 USD. The reverse DCF implies growth of 32.9%, a gap of -19.1% against the five-year revenue growth of 52.0%.

What holds the case up is the operating margin of 27.6% against a ten-year median of 19.4%, ROIC of 16.5% against a WACC of 12.3%, and revenue growth in eight of the last ten years. What would break it is the current ratio of 0.22, a five-year free cash flow conversion of -176.4%, and a five-year share count growth of 5.0% a year. The price also requires growth well above what the company has delivered.

Financial health

Financial strength is red, held back by a current ratio of 0.2168 and supported by no metric that is assessed as good. The quick ratio is 0.1104, and net debt to EBITDA is 2.93 on a trailing basis. Debt to equity is 1.98, and interest coverage is 5.35 on a trailing basis. The Altman Z-score is 2.52, in the grey zone. The Altman model was designed for manufacturers, so it is only a rough guide for a cruise operator. Insolvency risk: low, about 1.95% by the estimate of the Ohlson model over one to two years. The company's current liabilities far exceed its liquid assets, which is typical for a business that collects customer deposits in advance, but it leaves little cushion if bookings fall.

Earnings quality

Earnings quality is red: free cash flow conversion and share dilution are assessed as bad, while the Piotroski score is good. Trailing free cash flow conversion is 33.2%, but the five-year figure is -176.4%. The accrual ratio is -5.6%, which is a favourable sign, and stock-based compensation is only 0.7% of revenue. Free cash flow after stock-based compensation is 1.38 billion USD. The share count has grown at 5.0% a year over five years, so there are no net buybacks. The Piotroski score is 7 of 9. The Beneish M-score is not available. The company beat earnings expectations in seven of the last eight quarters, with an average surprise of 5.7%. Estimate revisions are mixed: next year's estimates have 11 upgrades and 10 downgrades in the last 30 days.

Profitability

Profitability is green. The gross margin is 46.7% against a median of 44.1%, the operating margin is 27.6% against a median of 19.4%, and the net margin is 23.8% against a median of 16.1%. ROIC of 16.5% sits against a WACC of 12.3%, and the given difference of 4.3 percentage points is a value creator. The DuPont split shows that return on equity of 38.9% is driven partly by leverage: the net margin is 23.8%, asset turnover is 0.43, and the equity multiplier is 4.15. Return on equity therefore overstates the underlying economics relative to ROIC, which is the more reliable measure here. The tax rate is 1.9%, which flatters net income.

Growth

Growth is green. Revenue has a compound annual growth rate of 26.6% over three years, 52.0% over five years and 8.0% over ten years. Revenue grew in eight of the last ten years. Earnings per share compounded at 17.9% over ten years, and free cash flow per share at 11.6%. The five-year rate is high because it starts from the depressed post-pandemic base. Next year's earnings estimate implies growth of 14.4%, which is assessed as good. The three-year and five-year earnings growth rates are not available, so the recent trend in profits cannot be checked against the ten-year figure.

Valuation

Valuation is red, as the verdict is overvalued with a margin of safety of -49.0%. Price-to-earnings is 19.8 against a median of 17.3, with a premium of 14.3%. Price-to-free-cash-flow is 59.7 against 46.4, a premium of 28.6%, and price-to-book is 7.70 against 3.14, a premium of 145.1%. The DCF gives 81.68 USD per share at a discount rate of 14.19%, and the terminal value accounts for 40.7% of it. The fair value from historical multiples is 262.00 USD. The fair value is an order of magnitude built on fixed assumptions, not a price target. The reverse DCF implied growth of 32.9% exceeds the five-year revenue growth of 52.0% only in the sense given by the model's gap of -19.1%. The dividend yield is 1.5%, with a payout of 90.3% of free cash flow.

Risks

The current ratio of 0.22 means that short-term obligations are many times the liquid assets. A downturn in bookings could strain liquidity before it affects earnings, and the net debt to EBITDA of 2.93 limits flexibility. A five-year free cash flow conversion of -176.4% means that reported profits have not reliably turned into cash, so the trailing conversion of 33.2% may not persist. The share count increase of 5.0% a year dilutes per-share value. If the next-year growth of 14.4% fails, the price of 336.98 USD would be harder to justify, since the reverse DCF already implies 32.9%. The Beneish M-score, the three-year and five-year earnings growth rates and the Altman model's fit for a cruise company are not available or limited. This analysis lacks a debt maturity schedule and revenue by segment, so refinancing risk and the contribution of each brand cannot be assessed.