Key Points
Occupancy rates have reached 110%.
The need for more ships forced Royal Caribbean to stop paying down the massive debt built up during the pandemic.
Royal Caribbean (NYSE: RCL) stock finds itself in an unexpected place. Despite being the second-largest cruise line as measured by revenue, it stands out over the industry leader, Carnival Corp.
Moreover, strength in the travel market has forced it to invest in new ships even though it still carries heavy debts from the shutdown during the pandemic. Nonetheless, despite such competition, Royal Caribbean stock is likely a buy. Here's why.
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Royal Caribbean's role in the cruise industry
Royal Caribbean stands out in the cruise marketplace by offering large, amenity-rich ships. That investment makes the ship's destinations in themselves, which can help it command higher prices. According to Cruise Market Watch, Royal Caribbean holds 27% of the market, second only to Carnival's 41.5%.
The cruise industry is sailing in smooth waters. It has bucked worries about the economy, reporting an occupancy rate of 110% for 2025 in an industry that defines 100% occupancy as two people in every cabin. That means less discounting to fill its ships, which bodes well for shareholders.
Amid that success, it launched its Star of the Seas ship last year and plans to introduce a new ship every year through 2029. With that expansion, one can see why the travel stock is up by over 30% over the last year.
The downside to the shipbuilding is that it has stopped paying down the debt built up by the pandemic. In 2025, total debt stood at $21.9 billion, up from $20.6 billion in 2024. That should concern investors, given Royal Caribbean's $10.2 billion book value.
However, its performance has improved borrowing terms so much that the yearly interest expense fell from almost $1.6 billion in 2024 to just under $1 billion today. That has allowed it to manage debt while accommodating its growth.
Royal Caribbean stands out because it is less dependent on budget travelers than Carnival. Consequently, Royal Caribbean has a market cap of $83 billion compared to just $42 billion with Carnival.
That is a testament to its higher margins and superior ability to maintain pricing power and profits. As a result, Royal Caribbean commands a P/E ratio of 20 versus 15 for Carnival. Also, considering the average P/E ratio of 30 for the S&P 500, one could argue that Royal Caribbean's valuation is attractive given its strength in the cruise market.
Royal Caribbean is a buy
Ultimately, Royal Caribbean's business is firing on all cylinders, and it shows signs of being a long-term wealth builder for investors.
Admittedly, the economy seems uncertain, and seeing the debt rise again could make some investors uncomfortable. Nonetheless, Royal Caribbean's high occupancy rate and ability to attract premium pricing speak well to its business. Moreover, this increase in debt allows it to build more ships, which presumably should lead to higher revenue and profits over time.
Considering that the stock sells for just 20 times earnings, now looks like an excellent time to add shares of this cruise line.
Should you buy stock in Royal Caribbean Cruises right now?
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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
