Cruise operator Royal Caribbean’s (RCL) shares surged in price last week after Pfizer shared positive results for its COVID-19 oral antiviral treatment candidate, which was found to reduce the risk of hospitalization or death by 89%. However, the stock has slumped 8.2% over the past five days. Also, given that RCL is currently trading at a lofty valuation, is the stock worth betting on now? Read on.The world's second-largest cruise company, Royal Caribbean Cruises Ltd. (NYSE:RCL), which is based in Miami, Fla., owns three global cruise vacation brands, including Royal Caribbean International, Celebrity Cruises, and Silversea Cruises. Its brands operate approximately 58 ships with an additional 15 on order. Its stock has gained 20.4% in price over the past year and 18.8% year-to-date to close yesterday’s trading session at $86.30. However, the shares are currently trading below their 50-day moving average. And over the past five days, RCL has retreated 8.2%.
The company incurred massive losses last year due to pandemic-related travel restrictions. But recently announced positive data from Pfizer Inc. (NYSE:PFE) for its COVID-19 oral antiviral treatment candidate, which was found to reduce the risk of hospitalization or death by 89%, buoyed investors’ optimism about the recovery of the cruise industry. RCL shares advanced following the news release. Furthermore, if the breakthrough drug does reduce fatalities, the demand for travel should rebound and enable cruise line companies, including RCL, to reverse their fortunes.
The company expects to generate positive cash flow by spring and be profitable for the entire year of 2022. However, operational challenges persist, and the demand rebound is uncertain because the possibility of new variants of the virus emerging cannot be ruled out. Also, the commercialization of the Pfizer drug is expected to take a while. Also, RCL looks significantly overvalued at its current price level, considering its underlying fundamentals and, with a 2.62 beta, the stock seems to be highly volatile.