What happened

Shares of Carnival (NYSE:CCL) rose 18.7% in August, according to data from S&P Global Market Intelligence. The cruise line operator's stock was decimated earlier this year amid the COVID-19 pandemic, but has seen big spikes periodically throughout the spring and summer, whenever investors got their hopes up for a vaccine and a cruising recovery.

Though the company didn't have any earnings or financial releases, there was lots of August activity, with more U.S. cruise cancellations, but also some resumptions planned for later this year in Europe. And Carnival raised additional debt and equity during the month, buying shareholders a bit more time.

A cartoon of a cruise ship wearing a large facemask over the bow of the ship.

Image source: Getty Images.

So what

At first glance, it's a wonder that Carnival stock actually appreciated during August, considering a bunch of events that should have been a negative. The company raised about $1.4 billion through an equity offering at $14.02 per share in order to pay off some interest-bearing convertible notes, then raised an additional $900 million in debt at a coupon of 9.875%.

While these raises bought Carnival more time, they are also dilutive to equity value. In addition, U.S. no-sail orders were extended through October, and several 2021 cruises were canceled across the industry. But Carnival's AIDA cruise line does plan to resume cruising in Germany this fall and winter.

More likely, Carnival was bid up on hopes for a vaccine coming sooner rather than later, as well as the late August Food and Drug Administration approval for a rapid five-minute COVID-19 test from Abbott Labs (NYSE:ABT). A potential rapid rollout of that test could enable cruise lines to get up and running faster, if everyone is tested before boarding.

Now what

There's a lot of uncertainty in Carnival and all cruise line stocks right now. I'd expect these consumer discretionary stocks to continue rising on days in which testing and vaccine news is positive. But the longer that cruise lines are effectively not sailing, or not sailing much, the more they will continue to burn cash, necessitating more equity or debt raises, which would be a headwind to value.

Cruises should remain popular after the pandemic has subsided, as they have for the last 20 years. However, investors should only allocate money to cruise stocks that they can afford to lose, since these companies still run high risks of dilution and potential bankruptcy should the no-sail posture drag on into next year.