Natural Disasters Should Remind Investors to Consider More Than Just Numbers When Investing

This year has not been a good one for people living in or wanting to visit the Caribbean. With one major hurricane gone, another on its way and the potential for more, the impact has been significant not only on people but businesses as well. Specifically, the cruise line business is perhaps the most vulnerable industry when it comes to these types of disasters and underscores the risk investors take putting their money into these types of investments.

Many cruise lines including Royal Caribbean Cruises Ltd (NYSE:RCL) and Carnival Corp (NYSE:CCL) had to cancel or postpone several cruises. The problem for these types of investments is that the businesses are largely seasonal and if a company’s operations are cancelled in peak season then that could have devastating impacts on overall sales and profitability.

In the case of Royal Caribbean, its quarter ending September 30th was its largest the whole year, with sales over 21% higher than the previous quarter.

It is reasons like this that investors need to consider factors outside of just financial statements and valuation multiples to determine if a stock is a good buy. Royal Caribbean currently trades at a multiple of just 16 times its earnings which isn’t a very high multiple and part of the reason could be the inherent risk involved with the industry that discourages investors from paying a high values for the company.

Hopefully the people and the businesses impacted by these disasters can recover. From an investment point of view this serves as a reminder to be cognizant of factors outside of just numbers when it comes to investments to fully appreciate the full risks of an investment.