Setting Sail on the High Seas: Carnival Corporation (CCL), Royal Caribbean Cruises Ltd. (RCL)

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Royal Caribbean

Royal Caribbean’s growth numbers look almost exactly like those at Carnival. The company has seen some down years over the past few years and they are most definitely planning a fight back over the coming couple of years. EPS growth is once again looking likely to be around 25% per year over the next two fiscal years for this cruise liner that totes almost 200 destinations around the world.

Prepare to be scared now, though, because this company’s current P/E stands at an incredible 451.6. That’s big enough to scare even the craziest of investors away. It’s definitely put me off of buying it.

Could future growth really be worth 450x current earnings at Royal Caribbean? It doesn’t look like it. The ratios are looking very similar, if not worse, to those at Carnival. Royal Caribbean comes with a 1.3% dividend yield, a much higher LT debt to equity ratio of 0.76, a similar gross margin, and a lacking pre-tax margin at 7.6%. I’d consider leaving Royal Caribbean at home.

Norwegian Cruise Lines

THEY JUST WENT PUBLIC! So give this company a big three cheers. Not only that, they’ll also be making use of a multi-million dollar facility right here in Texas. The Bayport Terminal located in the Houston suburbs, right between Houston and Galveston will become another home to this expanding cruise liner.

With this company being brand new to the market, it is a little difficult to properly gauge them. What we can look at is their incredibly low P/E ratio compared to the other two companies in this article. Norwegian Cruise’s P/E is down at 4.62. Their market cap is only $5.6 billion. Price to book value is an incredible 0.32; this stock is looking incredibly cheap.

The gross margin is at 33% and the pre-tax margin is at 5.72%. Both of those figures are decent. The pre-tax margin is obviously lower than that of Carnival or Royal Caribbean, but I think that Norwegian definitely presents an opportunity in terms of buying.

Bottom Line

Keep an eye on Norwegian Cruise Lines. It’s priced low and it could be poised for a takeoff. They are coming to new ports and reaching more people; the Houston port alone is a 6 million person market, and that’s just the metropolitan area.

I’d stay away from Royal Caribbean, and I’d consider looking further into Carnival. Royal Caribbean is priced much too highly for my tastes. Carnival is getting up there into the unbearable zone, but future profits will bring that number down, fast.

The article Setting Sail on the High Seas originally appeared on Fool.com and is written by Ash Anderson.

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