It May Be Too Early to Buy Carnival Stock

Stocks to sell

In 2020, investing in the travel sector in general and cruise companies in particular has produced losses for shareholders. Today I’m evaluating Carnival (NYSE:CCL) stock. Year-to-date, CCL stock is down an eye-popping 73%.

ccl stock

Source: Ruth Peterkin /

Carnival’s shares are dual-listed both in the U.S. and the U.K. In fact, it is the only company in the world to be included in both the S&P 500 index in the US and the FTSE 100 index in the UK.

As we start a new month when several U.S. states and countries around the world are discussing how to get back to business without compromising the health of the public, some investors are wondering what may be next for CCL stock price. At this point, I do not believe that the valuation of cruise operators like Carnival is attractive yet.  As a result, it may still be too soon to invest in the shares. Here’s why.

The Pandemic and Carnival

Until the novel coronavirus outbreak became a pandemic, Carnival prided itself on being the world’s largest cruise operator. The company’s different cruise line brands used to operate a combined fleet of over 100 vessels that visited more than 700 ports globally. Annually, the combined fleet welcomed almost 11.5 million passengers aboard, representing about 50% of the global cruise market.

Analysts used to discuss the company’s potential growth, especially in the emerging economies of Asia and.  Latin America, Those regions could have provided major catalysts for Carnival. 

However, in the past several weeks, Carnival and other cruise operators, including Royal Caribbean (NYSE:RCL) and  Norwegian Cruise Line (NYSE:NCLH), have had to suspend their operations. Thus, although it is interesting to hear about these past numbers, it is also somewhat meaningless to use them to estimate the company’s future performance.

For its first quarter that ended in February, Carnival reported a GAAP net loss of $781 million, or $1.14 per share, on revenue of $4.8 billion. In the same quarter last year, its net income was $336 million, or 48 cents per share, on revenues of $4.7 billion.

In a statement, the firm said “We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have a material negative impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such outbreak.”

The Price of CCL Stock in the Past Five Years

At the end of April 2015, Carnival’s stock price was around $46. Today it’s around $14. On Jan.2, the shares were worth around $51.

The stock’s compound annual growth rate over the last five years was -21.17%. Put another way, $1,000 invested in CCL stock would have decreased to about $304.

Please note that until recently, Carnival used to pay regular dividends. The calculation above doesn’t take into consideration its dividends or reinvesting that income. I did not factor in any brokerage commissions or taxes either.

Given the grave uncertainty the industry is facing, Carnival has recently axed its dividend. It has also suspended buybacks of its stock.

Can Carnival Stock Recover Soon?

As the numbers above show, CCL stock has had a downward and difficult trajectory. Investors who bought its shares would have lost considerable capital over the past five years. But in fact, the stock’s  steep losses occurred in 2020. Thus, if we had done a similar calculation in early January 2020, the results would have looked a lot different.

According to the International Monetary Fund (IMF), the global economy will contract 3% in 2020. Yet in 2021, the IMF forecasts robust growth. Stock prices generally reflect expectations of future profits.

Investors who agree that these gray clouds may dissipate in the coming months may want to start investing in cruise stocks.

However, many countries are still facing lockdowns as well as travel restrictions. Thus, the light at the end of the tunnel for the industry may still be  far away. Also, since Carnival’s dividends are now suspended, I do not expect passive income seekers to return to the shares.

On April 2, Carnival stock price hit a 52-week low of $7.80. It was an all-time low for the shares. Could it be that the Street is having doubts about the ability of the cruise operator to survive?

The company is expected to release its Q2 earnings in late June. Investors who are considering buying the shares may want to wait for the company’s results, giving them an opportunity to study the company’s metrics and its outlook for the second half of the year in detail.

By then, the Street may have a better view as to when Carnival will generate revenues again. I would also pay attention to additional steps the beleaguered cruise operator may be taking to improve its liquidity and whether it’s pursuing any additional financing arrangements.

The Bottom Line on CCL Stock

It’s still unclear when consumers will start taking international vacations again. Carnival and its peers may not be able to regain their pre-pandemic revenue levels for many months, if not years, to come. And unless cruises resume in the coming months, operators will be put in rather complicated and difficult financial positions.

I believe our economy is resilient. And in the coming months, we will be able to put at least some of the economic cost of this viral outbreak behind us. Thus, there will be opportunities to invest in the broader indices at bargain levels . However, I think investing in CCL stock is still risky.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.

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