We recently compiled a list of the 10 Best Leisure Stocks To Buy Now. In this article, we will look at where Royal Caribbean Cruises Ltd. (NYSE:RCL) stands against the best leisure stocks to buy now.
In recent years, the leisure market has experienced remarkable growth. According to Market Research Intellect, the size of the global leisure market was estimated at $1.46 trillion in 2023 and is projected to expand at a compound annual growth rate of 21.8% from 2024 to 2031, when it will have grown to $8.6 trillion.
Along with growth, according to the YouGov survey, there were also notable changes in the leisure and entertainment industry in 2023 due to changing customer demands and technological breakthroughs. Even though 81% of US and 79% of UK customers recognize the value of museums, more than half of them only occasionally visit them. On the other hand, only 5% of people in the APAC and UAE skip theme parks, compared to 30% in North America.
While out-of-home entertainment expenses are on the rise, 13% of customers intend to spend more. Additionally, 36% of viewers find advertisements entertaining, and 36% of them are using virtual reality. In the United States, 10% prefer to buy movie tickets in advance, while 27% are concerned about how AI breakthroughs may affect professions, notably in information technology and accounting.
In the meantime, gambling is changing; 70% of US gamblers are open to sports betting with AI assistance, and cryptocurrency betting is becoming more popular in the US and the UK. As we have mentioned in our article, “10 Best Sports Betting Stocks to Buy Now,” generative AI is projected to dramatically impact sports betting in the next 12-18 months.
As per YouGov study, with 10% of UK consumers possessing smart devices and 24% looking at second-hand equipment, the fitness industry has also experienced growth. In general, live events such as food and drink festivals remain popular; even with safety concerns, 45% of attendees want to participate in 2024. Lastly, a shift in consumer views is evident in the rise of dynamic pricing, particularly in the US, where 54% of consumers are willing to pay more to support artists.
On the other hand, the size of the global leisure travel market was valued at $340.31 billion in 2022 and is projected to grow at a CAGR of 22.6% from USD 417.3 billion in 2023 to $2129.96 billion by 2031, as per SkyQuest.
Regionally, North America has been the market leader for leisure travel, especially the United States and Canada. However, when it comes to the global leisure travel industry, Asia-Pacific is expanding at the fastest rate. Countries in Southeast Asia, such as China and India, are major destinations for tourists in the area.
Amid the growth, a most recent Longwoods International tracking study of American travelers indicates that 39% of them plan to go abroad for leisure over the next 12 months. Furthermore, 34% of those who plan to travel abroad for leisure say they will travel abroad more this year, 50% plan to take about the same number of such trips, and only 16% say they would travel abroad less.
Amir Eylon, President and CEO of Longwoods International, stated that the expected boost in international travel by Americans is impressive, given lingering concerns about inflation and the financial health of the U.S. consumer. Moreover, he revealed that it is further evidence that American travelers see COVID-19 fading away in their rear-view mirror.
Methodology:
We sifted through holdings of leisure ETFs and online rankings to form an initial list of 20 leisure stocks. Then we selected the 10 stocks that were the most popular among institutional investors. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
Royal Caribbean Cruises Ltd. (NYSE:RCL)
Number of Hedge Fund Holders: 48
As the second-biggest cruise operator in the world, Royal Caribbean Cruises Ltd. (NYSE:RCL) operates 68 ships under five different global brands and partner companies. The company manages the brands Silversea, Celebrity Cruises, and Royal Caribbean International. Additionally, the business owns a 50% stake in a joint venture that runs Hapag-Lloyd Cruises and TUI Cruises. Royal can compete on the basis of innovation, quality of ships and service, variety of itineraries, choice of destinations, and pricing due to the brands it has chosen for its portfolio. In 2021, the firm concluded the sale of its Azamara brand.
Travel-related consumer interest has given the company momentum into 2024, sustaining the company’s strong demand and pricing trends. After the fleet was redeployed, which was finished in the middle of 2022, occupancy reached historical levels, which helped to normalize cash flow and earnings. With record pricing in 2023 (13% higher than in 2019), Royal Caribbean expects further growth in 2024 due to strong booking patterns and price levels brought about by a robust customer appetite for travel. Profitability will be aided by improved cost management of expenses due to continued productivity measures and optimal occupancy, as per analysts.
JPMorgan maintained its Overweight rating on the firm’s shares and increased the firm’s price objective from $210 to $213. After meeting with certain management teams in the industry, the analyst informs investors in a research note that there are “zero signs of softening in any lead indicator” and that the demand backdrop for the cruise is still solid. According to the company, booking curve analysis indicates unprecedented visibility with substantial strength and multi-year pricing power in both Alaska and Europe through fiscal 2025.
Ariel Fund stated the following regarding Royal Caribbean Cruises Ltd. (NYSE:RCL) in its Q2 2024 investor letter:
“Global cruise vacation company, Royal Caribbean Cruises Ltd. (NYSE:RCL), advanced on another quarterly earnings beat and subsequent raise in full-year guidance. Stronger than anticipated consumer demand, healthy onboard spend, robust pricing and solid cost containment lifted recent results. Additionally, RCL is benefitting from several new megaships, more island destinations and re-entry into the China market. The resiliency of the core cruise consumer, in combination with management’s superior operational expertise and revised earnings outlook, lays the foundation for RCL to exceed its three-year strategic imperative, the Trifecta Program, a year earlier than expected.”
E. Shaw’s D E Shaw is the largest shareholder in the company, with 2,929,240 shares worth $467 million.
Overall RCL ranks 10th on our list of the best leisure stocks to buy now. While we acknowledge the potential of RCL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RCL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This post was originally published on Insider Monkey.