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Why Carnival Cruise Lines Stock Gained 21% in April

By Demitri Kalogeropoulos – May 1, 2020 at 2:41PM

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Risk-seeking investors jumped back into the stock even though its unclear when revenue will start flowing through the business again.

What happened

Carnival (CCL -6.06%) stock outperformed a strong market last month by gaining 21% compared to a 13% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

The boost erased only a small portion of prior losses, as the cruise ship leader's shares are still down by more than 70% so far in 2020.

A cruise ship out at sea.

Image source: Getty Images.

So what

The cruise ship industry has been one of the most heavily impacted by the COVID-19 pandemic, with Carnival joining peers Royal Caribbean (RCL 1.26%) and Norwegian Cruise Line (NCLH 0.53%) in announcing several months of cancellations across its fleet in order to adhere to guidance from governments and world health organizations seeking to slow the spread of the novel coronavirus.

The fact that revenues have essentially stopped while fleet maintenance costs continue to mount pushed Carnival's shares dramatically lower in March. Some investors saw that slump as an attractive entry point, and demand for the stock pushed the price slightly higher last month.

Now what

There are significant risks involved with buying Carnival stock today, including the uncertain date of resumed cruising services. The company has loaded up on new debt in recent weeks, and it's also unclear where the cruise vacation leader's profitability will land as it tries to maintain safety on its vessels while social distancing remains on consumers' minds.

Those concerns should have investors approaching any cruise ship stock purchase with a long time horizon and plenty of skepticism.

Demitrios Kalogeropoulos owns shares of Carnival. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Carnival Corporation Stock Quote
Carnival Corporation
CCL
$6.98 (-6.06%) $0.45
Royal Caribbean Cruises Ltd. Stock Quote
Royal Caribbean Cruises Ltd.
RCL
$44.02 (1.26%) $0.55
Norwegian Cruise Line Holdings Stock Quote
Norwegian Cruise Line Holdings
NCLH
$13.29 (0.53%) $0.07

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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