OSW: Rising Margins And Buybacks Will Drive Upside In 2025

Key Takeaways

• Expanded cruise partnerships and focus on premium wellness offerings position OneSpaWorld to capture surging experiential travel demand and drive stronger revenue growth.
  
• Technology innovation, pre-cruise booking, and an asset-light model enhance efficiency, margins, and flexibility, supporting sustained earnings and market share expansion.
  
• Heavy reliance on cruises, slow growth in new partnerships, cost pressures, uncertain AI benefits, and stricter regulations threaten margins and future growth.

Catalysts

Operates health and wellness centers onboard cruise ships and at destination resorts in the United States and internationally.

• Increasing deployment of new wellness centers on additional cruise ships, along with expanded exclusive partnerships, positions OneSpaWorld to benefit from the global growth of experiential travel and rising cruise passenger volumes-which should drive sustained revenue growth as fleet count and utilization increase.
  
• Strong consumer demand for wellness and self-care, reflected in higher onboard spend and robust adoption of premium services (e.g., medi-spa, IV therapy, innovative treatments), provides ongoing pricing power and opportunity for upselling, supporting both top-line revenue and higher net margins.
  
• Strategic rollout of next-generation technologies and AI-driven initiatives, although not yet fully reflected in results, is expected to boost operational efficiency and service personalization by 2026-reducing SG&A and supporting future EBITDA and earnings growth.
  
• Enhanced pre-cruise booking initiatives offer meaningful upside, as pre-booked passengers consistently spend ~30% more than non-prebooked guests; further penetration should directly lift revenue and possibly improve margins.
  
• A capital-efficient, asset-light business model with a strong balance sheet and ample liquidity supports continued expansion, cash return to shareholders, and the flexibility to capture market share as demand for wellness experiences grows-contributing to higher free cash flow and long-term earnings.

OneSpaWorld Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming OneSpaWorld Holdings's revenue will grow by 8.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.7% today to 9.3% in 3 years time.
• Analysts expect earnings to reach $110.6 million (and earnings per share of $1.02) by about September 2028, up from $71.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.8x on those 2028 earnings, down from 31.9x today. This future PE is greater than the current PE for the US Consumer Services industry at 18.6x.
• Analysts expect the number of shares outstanding to decline by 1.24% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

OneSpaWorld Holdings Future Earnings Per Share Growth

Risks

• Over-reliance on the cruise industry exposes OneSpaWorld to potential secular headwinds such as geopolitical instability, travel restrictions, and climate change-driven disruptions, which could significantly reduce cruise passenger volumes, thereby impacting top-line revenue and limiting growth opportunities.
  
• Slower-than-expected ramp in newer cruise line brands, such as Aroya and Mitsui, characterized by currently weak load factors and geographic concentration, raises the risk of continued underperformance in certain key markets, potentially muting incremental revenue from new ship partnerships.
  
• The company's asset-light model is financially efficient during up-cycles but heightens vulnerability to high fixed shipboard labor costs during downturns, amplifying the impact of reductions in guest spend or cruise cancellations-a dynamic that could compress EBITDA and net margins in adverse periods.
  
• Early-stage adoption and uncertain impact of AI-driven operational enhancements mean that the anticipated efficiency and revenue gains may not materialize on the expected timeline, potentially constraining future margin improvement and cost reduction.
  
• Increasing regulatory and compliance pressures within the spa and wellness industry, combined with tightening standards for health, licensing, and environmental practices, may drive up costs for compliance and capital investment, putting downward pressure on future net margins and return on invested capital.

Valuation

• The analysts have a consensus price target of $24.667 for OneSpaWorld Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $110.6 million, and it would be trading on a PE ratio of 26.8x, assuming you use a discount rate of 7.0%.
• Given the current share price of $22.13, the analyst price target of $24.67 is 10.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.