Why my family bought shares of Royal Caribbean now

Royal Caribbean (NYSE: RCL) has some really ugly numbers right now, because of the coronavirus. In its most recent quarter, revenue growth fell 94% year over year. And we know why the numbers are bad – cruise ship bookings around the world have been wiped out due to government lockdowns.

My investment thesis is that this is about to change. Here’s why I think cruise lines will reopen as soon as possible, and why investors might want to buy shares of Royal Caribbean now.

It’s an election year in the United States

In recent presidential debates, the coronavirus – and the US response to it – was a major topic. One side is more inclined to reopen, and the other side is more inclined to keep businesses closed for health reasons. It is only natural that this fear of global health becomes politicized in an election year. What will happen after the elections are over?

My belief is that we will see a change in political sentiment. And this change will happen regardless of who wins the election. We will see more positive news about coronavirus vaccines and their effectiveness. Several pharmaceutical companies are currently in phase 3 trials, and there is cause for optimism.

In addition, we will see more positive news on COVID-19 diagnostics and their reliability. Royal Caribbean has already announced that all passengers and crew will be tested for the coronavirus. The company wants to “make our ships and the environment a bubble” and safer than staying at home.

Royal Caribbean has private islands, which may allow it to open before other cruise lines. And we are already starting to see places reopening for tourism around the world. Some of these places include Aruba, Brazil, Costa Rica, Cuba, Maldives, Mexico, Morocco, Panama, Puerto Rico, St. Barthelemy, and the Turks and Caicos Islands. Destinations that have reopened for travel with partial quarantine restrictions are Barbados, Curaçao, Dominica, Jamaica, Saint Vincent and the Grenadines and the US Virgin Islands.

For many small countries, tourism is an important part of their economy. The United States can shut down its tourism industry and continue to thrive as a society. Other countries do not have this luxury. And I believe there will be a “domino effect”. As more countries reopen to tourism, the more likely it is that the cruise industry will be allowed to reopen in the United States.

Royal Caribbean stock has been flying since March

Royal Caribbean’s share price fell to $ 19 a share on March 18. It was the point of maximum negativity. It’s been on an absolute tear since then, with the price hitting $ 72 on September 4 and $ 70 on October 12.

For investors who bought in March, you’ve already tripled your money. Of course, people who bought at the start of the year are still sitting on massive losses, as the stock is down nearly 60% for 2020. So Royal Caribbean has been a great investment for you, or a bad investment for you, depending on when you bought your stocks and what you paid for them.

Indeed, the stock rebounded so much that the company decided to withdraw some money. A few weeks ago, Royal Caribbean had a secondary equity offer, as well as a debt offer. The company added another billion dollars to its bank account. The headline took a little hit on the news.

Although many people consider a secondary offer to be negative, since the company is selling its own stock, to me that indicates wise management. The market is convinced that Royal Caribbean will rebound. (That’s why the stock has tripled since March.) Management has used this uptrend to raise cash, which strengthens the company’s finances. So while a secondary bid is bad news for the stock in the short term (the stock price dropped to $ 58 when we bought), it’s good news for the company.

My family loves Royal Caribbean

Many years ago my family cruised on Explorer of the Seas. It was so much fun. We parasailed and rock climbed and played in the casino and laid down on the beaches. Cruise ships are awesome. We are biased in favor of Royal Caribbean because it is the cruise we took.

I never bought any shares in Royal Caribbean because its revenue growth was slow and steady. I’ve always preferred high-growth stocks, like Software-as-a-Service companies, or biotechnology with an exciting new drug. But stopping the coronavirus changed my calculation.

Royal Caribbean’s revenue growth is set to increase dramatically. Right now, the company is like a biotech start-up waiting for the green light. Royal Caribbean is waiting for the federal government to allow it to resume offering its services to the public. The good news for investors is that we know what kind of business we can expect from the company once it gets the green light.

While the share price will certainly be volatile in the short term, I have a firm belief that in 2021 the cruise lines will pick up again. Although I’m overly optimistic, Royal Caribbean has deep pools of cash, over $ 4 billion. And the company also has over $ 11 billion in credit facilities. In my opinion, it is not a question of whether the stock will recover, but when.