We recently compiled a list of the 10 Best Leisure and Recreation Services Stocks to Buy Now. In this article, we are going to take a look at where Royal Caribbean Cruises Ltd. (NYSE:RCL) stands against the other best leisure and recreation services stocks to buy now.
Leisure travel is booming and setting new records. According to AAA, 119 million Americans will travel 50 miles or more between December 21 and January 1, breaking the 2019 record by 64,000. Holiday travel has reached all-time highs. Over 3 million passengers were screened by TSA on December 1st, and 18.3 million passengers were screened during Thanksgiving week, both of which set new records. Despite a 4% yearly rise in ticket prices, demand has been fueled by a 9% drop in airfare this season. Spending has been driven by continued stimulus savings, low unemployment, and wage hikes. Despite continuing consumer concerns about economic instability, Lee McPheters, a research professor and director of the JPMorgan Chase Economic Outlook Center in Arizona State University’s W. P. Carey School of Business, points out that the industry’s resurgence is being driven by pent-up demand and strategic pricing, with travel being prioritized for experiences.
The leisure market has grown remarkably in the last few years. The global leisure market was valued at $1.46 trillion in 2023, and Market Research Intellect projects that it will rise at a compound annual growth rate of 21.8% between 2024 and 2031, reaching $8.6 trillion.
According to Deloitte’s report, in Q3 2024, the leisure industry continued to rebound, as total net expenditure increased from -10.3% in Q2 to -8.5%, the highest level since Q1 2022. Short holidays (+4.7 percentage points) and eating out (+5.5 percentage points) topped the increase in spending across nine of the eleven leisure categories. Casual dining sites rose by 1.7% year on year, with three new locations opening each week.
While spending on long vacations dropped because of rising expenses and economic uncertainties, short vacations gained popularity as consumers prioritized affordability. Live sports, concerts, and festivals drove a 4.1 percentage point increase in net spending on culture and entertainment. Spending at pubs and bars and leisure activities at home both climbed by 1.7 and 1 percentage point, respectively.
Nonetheless, it is anticipated, as per the Deloitte Consumer Tracker, that spending will decrease in nine out of eleven categories in Q4 2024, with the biggest declines occurring in eating out (-5.9 points) and longer holidays (-8.1 points). The hospitality industry will face challenges from growing expenses and cautious consumers, necessitating flexibility and value-driven tactics.
According to Lodging Analytics Research & Consulting (LARC), leisure demand growth will resume in 2025, providing a possible recovery for the industry as it adjusts to changing market conditions. As per the report, a 2.7% increase in ADR and flat occupancy would propel a 2.7% RevPAR growth in 2025. This comes after a 1.4% RevPAR growth in 2024, which was bolstered by a 1.6% increase in ADR and a 0.3% decline in occupancy. Key reasons cited by LARC include “growing inbound foreign arrivals” and the moderating strength of the US dollar. Corporate transitory demand is projected to remain strong in the first half of 2025, while convention activity, which increased by 4% in 2024, is expected to grow by 5% in 2025. Moody’s predicts a 2.2% GDP growth rate in 2025 along with further rate cuts from the Fed, providing a “short-term tailwind.”
Meanwhile, according to KPMG’s Global Leisure Perspectives 2024 report, the future of the hotel industry is being shaped by seven key trends. Automation and artificial intelligence (AI) are simplifying processes and improving visitor experiences with dynamic pricing and tailored advertising. A growing amount of personalization is data-driven, adjusting visitor experiences according to behavioral findings. Alternative lodging choices, such as rentals and glamping, are becoming increasingly popular, encouraging hotels to provide unique, authentic experiences. New revenue streams are being investigated, such as creating flexible work arrangements in underutilized locations. Unbundling services enable visitors to customize their stay, and creative collaborations are increasing market share and reach. Embracing these developments will be critical for remaining competitive in the changing landscape.
Commenting on technological developments in the leisure sector, Paul Fultz, Partner and US Segment Leader, Restaurants at KPMG in the US, remarked:
“As labor, supplychain and recession pressures abate, it is encouraging to see restaurant operators actively transform their operational capabilities and experiential strategies with digital technologies like automation and AI. It’s that kind of innovative thinking that will impact customer loyalty, near-term value and long-term growth”.
An aerial view of a luxurious cruise ship, surrounded by the blue horizon.
Our Methodology
We sifted through holdings of leisure ETFs and online rankings to form an initial list of 20 leisure stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks. 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: 52
Revenue Growth Rate (year-over-year): 57.24%
One of the Best Leisure Stocks, Royal Caribbean Cruises Ltd. (NYSE:RCL), the world’s second-largest cruise operator, runs 68 ships under five international brands and partner firms. The business is in charge of Royal Caribbean International, Silversea, and Celebrity Cruises. The company also holds a 50% share in a joint venture that manages TUI Cruises and Hapag-Lloyd Cruises. Royal’s collection of brands allows it to compete on the basis of innovation, ship and service quality, variety of itineraries, destination selection, and cost. The company completed the sale of its Azamara brand in 2021.
Royal Caribbean Cruises Ltd. (NYSE:RCL)’s high demand and pricing patterns have been sustained into 2024 by consumer enthusiasm for travel. After the fleet was redeployed, which was completed in the middle of 2022, occupancy returned to historical levels, helping to normalize cash flow and earnings. The firm anticipates significant growth in 2024 as a result of excellent booking patterns and price levels brought about by a robust customer appetite for travel, despite record pricing in 2023 (13% higher than in 2019).
In Q3 of 2024, Royal Caribbean Cruises Ltd. (NYSE:RCL)’s revenue grew by 17.45% YoY to $4.9 billion, primarily due to strong close-in demand, higher onboard spending, and improved pricing for European and Alaskan itineraries. Onboard and pre-cruise revenue greatly exceeded 2023 levels, showing strong consumer spending and participation, while net yields increased by 7.9% year over year. The company’s 2024 EPS forecast has been raised to $11.57–$11.62 (up 71% YoY), and it projects that 2025 EPS would surpass $14 due to yield growth, pricing power, and new private destinations like Perfect Day Mexico (2027).
Argus maintained its Buy rating on Royal Caribbean Cruises Ltd. (NYSE:RCL) shares and increased its price objective from $250 to $280. In a research note, the analyst informs investors that the company has resumed paying dividends, with a $0.40 quarterly dividend per share being paid on October 11, 2024. Additionally, according to Argus, the high cruise occupancy rate of 111% in Q3 of 2024 indicates sustained high demand and is probably going to provide higher-than-expected revenue and earnings.
E. Shaw’s D E Shaw was the largest stakeholder in the company from among the funds in Insider Monkey’s database at the end of Q3 2024. It owns 2.28 million shares worth $404.07 million as of Q3.
Overall, RCL ranks 8th on our list of the best leisure and recreation services stocks to buy now. While we acknowledge the potential for RCL to grow, 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: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.