In theory this should be a smart time to buy into the world's largest cruise line operator. It's a fair bet that Carnival (CCL -0.42%) (CUK -0.55%) and its smaller peers will begin sailing again at some point this year. We're in the early stages of the vaccination process that should ideally put an end to the pandemic that has essentially shut down the cruise line industry.

Prioritizing senior citizens for access to the COVID-19 vaccines makes this big news for an industry where retirees are a lucrative target audience during non-peak chunks of the cruising season. Last week Carnival, Royal Caribbean (RCL 1.23%), and Norwegian Cruise Line Holdings (NCLH 0.66%) all pushed out their return to sailing from April to May. We may finally be getting to the point where goalposts are planted in cement. Is the worst over for Carnival? The stock is trading 72% below its all-time high set three years ago, but there's more to this story than meets the eye. 

Artist rendering of the roller coaster that will be on the upper deck of Carnival's upcoming Mardi Gras ship.

Image source: Getty Images.

Rocking the boat

There are a lot of things that Carnival has done right in the lull since the last of its revenue-generating sailings shut down more than 10 months ago. Carnival has streamlined its fleet by unloading its less efficient ships. Just last week it announced that it was selling Pacific Princess, one of its smaller boutique vessels. Carnival has also shaved its overhead to the point where its monthly cash burn rate is at $530 million a month.

Carnival has boosted its liquidity to stay afloat into next year if the disruptions continue, but that survivalist move has come at a cost. The bloated share count and expanding long-term debt have kept the stock's enterprise value high even as its stock sinks. Carnival concluded fiscal 2019 at the end of November of that year with its stock at $45.08 and an enterprise value of $41.7 billion. A lot has happened in the 14 months since then, and the lion's share of the news has been negative. However, despite the stock kicking off the new trading week at less than half of where it was at the end of fiscal 2019 the enterprise value is roughly the same, at $39.7 billion. 

Put another way, the market believes that Carnival is worth roughly as much as it was before the pandemic even if individual investors who have owned the stock have lost more than half of their value since the end of fiscal 2019. Bulls hoping that the stock will return to its recent highs don't realize that Carnival's value as a company is already at pre-pandemic levels. They just were stuck with what is essentially a 2-for-1 stock split without receiving any additional shares. 

The worst is seemingly over in terms of fundamentals. Revenue growth will turn positive once Carnival is sailing again as we will already have lapped the mid-March disruption of last year. Analysts see Carnival losing half as much money -- per share -- this year as in 2020, but a lot of variables are baked into that consensus forecast.

The future is bright. One can even argue that Carnival will be even better in the future. It will have fewer ships, and the berths that pent-up demand don't claim are likely already spoken for with reservations already made from guests applying credits from canceled cruises on future sailings. As the largest industry player Carnival is also well suited to survive the inevitable shakeout.

The bullish argument for the stock bouncing back is more nuanced. Carnival is not a value stock just because it has fallen sharply over the past year. It has the largely the same enterprise value that it commanded a year ago even if it's fetching less than half the price. Carnival's fundamentals will start to improve in a few months, but it's going to have to do more than that for Carnival stock to go along for the ride.