Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Carnival Corporation (NYSE:CCL) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Carnival's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Carnival's key statistics:

CCL Total Return Price Chart

CCL Total Return Price data by YCharts.

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

6.8%

Fail

Improving profit margin

(50%)

Fail

Free cash flow growth > Net income growth

186.6% vs. (45.5%)

Pass

Improving EPS

(43.9%)

Fail

Stock growth (+ 15%) < EPS growth

7.5% vs. (43.9%)

Fail

Source: YCharts. *Period begins at end of Q4 2010.

CCL Return on Equity (TTM) Chart

CCL Return on Equity (TTM) data by YCharts.

Passing Criteria

3-Year* Change

Grade

Improving return on equity

(49.9%)

Fail

Declining debt to equity

(4.3%)

Pass

Dividend growth > 25%

0%

Fail

Free cash flow payout ratio < 50%

169.9%

Fail

Source: YCharts. *Period begins at end of Q4 2010.

How we got here and where we're going
Things don't look good for Carnival today -- the cruise operator earned only two out of nine possible passing grades, and it looks like one of those might be more of a timing technicality than anything. Carnival's revenue and income growth have been hurt over the past few years by consumer belt-tightening, and margins have plummeted due to higher costs and some highly unfavorable publicity. Carnival also pays out a significant amount of cash in dividends, which at the moment appears unsustainable. Can Carnival set sail for more profitable waters, or will the world's largest cruise ship operator have to be towed to dry dock for repairs? Let's dig a little deeper to find out what the future may hold.

As already mentioned, Carnival has lately suffered from both higher maintenance costs and a series of unfortunate events on its ships. The worst of these was the Costa Concordia wreck off the coast of Italy, which killed more than 30 passengers. Another Carnival-owned ship lost air conditioning and plumbing capabilities for several days and was derisively christened the "poop cruise" in the media after passengers relayed their sordid tales. These highly visible fiascos hurt the entire industry, but Carnival suffered worse for its direct connection to both events.

However, the company recently reported better-than-expected revenue and net income for its fourth quarter thanks to a rebound in cruise ticket prices and rising consumer spending. Carnival's also rolled out a nationwide marketing campaign and travel agent outreach program in order to revamp public perception of its brands. As a result, Carnival has outpaced peers Norwegian Cruise Line and Royal CaribbeanĀ on social media exposure.

Fool Dan Moskowitz notes that Royal Caribbean outperforms Carnival and Norwegian Cruise in terms of traveler ratings and employee satisfaction. However, Carnival's stronger and more effective social media presence offers better opportunities for marketing and promotions and to interact with individual customers -- an important consideration when trying to sell people on what is essentially a rather costly vacation. The company continues to boost its fleet count as well with the addition of two new liners: the 3,500-passenger Royal Princess for Princess Cruises and the 2,200-passenger AIDAstella for AIDA Cruises. Carnival will also replace three original Seabourn ships with a new Seabourn vessel, which is expected to sail in 2016. Carnival should also benefit from increasing its efficiency fleetwide, as fuel costs have been a thorn in cruise lines' sides for years.

Increasing demand for cruise travel in Asian countries has prompted Carnival to enact ambitious plans for the region that will soon double its presence in China and will also result in the launch of a cruise line originating from Japanese ports. The company has opened several offices throughout Asia in order to support its ongoing expansion plans in emerging markets. As a result, Carnival has realized significant booking volume growth for 2014, which could help fuel a long-term improvement in revenue over the coming years. Fellow Fool Bradley Seth notes that the global cruise line market has grown 8% per year since 1980 to reach roughly $36.2 billion in total revenue for 2013.

Putting the pieces together
Today, Carnival has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Alex Planes has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.