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Unsurprisingly, Royal Caribbean Cruises Ltd.'s (NYSE:RCL) stock price was strong on the back of its healthy earnings report. However, we think that shareholders may be missing some concerning details in the numbers.
We've discovered 2 warning signs about Royal Caribbean Cruises. View them for free.
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. As it happens, Royal Caribbean Cruises issued 5.5% more new shares over the last year. That means its earnings are split among a greater number of shares. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Royal Caribbean Cruises' historical EPS growth by clicking on this link.
How Is Dilution Impacting Royal Caribbean Cruises' Earnings Per Share (EPS)?
Three years ago, Royal Caribbean Cruises lost money. On the bright side, in the last twelve months it grew profit by 54%. On the other hand, earnings per share are only up 50% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.
Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if Royal Caribbean Cruises can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On Royal Caribbean Cruises' Profit Performance
Each Royal Caribbean Cruises share now gets a meaningfully smaller slice of its overall profit, due to dilution of existing shareholders. Because of this, we think that it may be that Royal Caribbean Cruises' statutory profits are better than its underlying earnings power. The good news is that, its earnings per share increased by 50% in the last year. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. For example - Royal Caribbean Cruises has 2 warning signs we think you should be aware of.