Over the past six months, Royal Caribbean’s shares (currently trading at $309.20) have posted a disappointing 6.1% loss, well below the S&P 500’s 7.6% gain. This may have investors wondering how to approach the situation.

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Even with the cheaper entry price, we're sitting this one out for now. Here are three reasons why RCL doesn't excite us and a stock we'd rather own.

Revenue growth can be broken down into changes in price and volume (for companies like Royal Caribbean, our preferred volume metric is passenger cruise days). While both are important, the latter is the most critical to analyze because prices have a ceiling.

Royal Caribbean’s passenger cruise days came in at 15.12 million in the latest quarter, and over the last two years, averaged 6.7% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Royal Caribbean has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.4%, lousy for a consumer discretionary business.

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Royal Caribbean historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 4.7%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.

Royal Caribbean falls short of our quality standards. After the recent drawdown, the stock trades at 17.6× forward P/E (or $309.20 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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