The United States' economy has largely reopened, with 57% of the population above 12 fully vaccinated against COVID-19. That means Carnival Corporation (NYSE:CCL) will skyrocket, right? Wrong. The company's stock looks overvalued, and its balance sheet is full of holes. Let's explore some reasons why this cruise ship operator could sink your investment portfolio.

1. The new "normal" is not so normal 

As a cruise ship operator, Carnival faced the brunt of the coronavirus pandemic, especially after the Centers for Disease Control and Prevention (CDC) mandated a no-sail order that grounded the industry for most of 2020. The company resumed operations in July with the launch of Carnival Vista from Texas (all passengers were required to show proof of vaccination). But far from an inflection point for the cruise industry, this voyage indicates just how bad the new "normal" could be for Carnival and its shareholders. 

Image of a cruise ship sinking at sunset.

Image source: Getty Images.

Right off the top, the vaccination requirement is creating legal and political conflict between state governments, the CDC, and Carnival's management. Carnival wants to follow the CDC's guidelines, which involve strict virus mitigation procedures, while states such as Florida and Texas have challenged some of these restrictions. 

It is unclear what impacts the political tussle will have on Carnival's operations, but the company is between a rock and a hard place. And it won't return to its pre-coronavirus business-as-usual any time soon. If Carnival's COVID-19 restrictions are too strict, it could alienate potential customers (43% of Americans above 12 are unvaccinated). But if restrictions are too lax, it risks a COVID breakout, which could be devastating for its brand -- particularly as the virus's deadly Delta variant spreads across the globe. International voyages are another wild card. 44% of the cruise guests Carnival carried in 2019 came from outside North America, and it is unclear when these countries will fully reopen for cruising.

2. Carnival's valuation is too high

With Carnival's "new normal" looking highly uncertain, investors should pay attention to its current performance when determining what the stock is worth. Second-quarter revenue is down 93% to $50 million. And the company logged an operating loss of $1.6 billion in the period, bringing its cash burn to $3.1 billion over the first six months of 2021. 

With $140 million in sales over the last 12 months and a market cap of $25 billion, Carnival stock trades for around 179 times current revenue. This valuation prices in a massive recovery that may not materialize. 

The company's balance sheet is another red flag. 

With cash and equivalents of $7.1 billion, Carnival has enough money to sustain its losses for a few more quarters. But this liquidity has come at a price. The company sold 12% of its fleet to raise cash in 2020, and it has dramatically expanded shares outstanding from 528 million at the start of 2020 to 974 million as of its second-quarter filing. The company also reports $26 billion in long-term debt, which will pressure its cash flow through interest expense and amortization. 

It's too late to bet on a recovery

Carnival's stock is still 82% above its 52-week low of $12 per share, but it is probably too late to bet on continued recovery. The cruise industry's future is still uncertain and Carnival's financials are in shambles, calling its high valuation into question. The company's massive debt load and continued equity dilution pose additional risks for investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.