Cruise season is back, and investors might be looking to make money while tourists prepare to sail the high seas. But not every cruise line is sailing with tailwinds.

Carnival (CCL 0.60%) fought hard to survive the pandemic, but Wall Street has rewarded the stock with a brutal 65% haircut over the past year. Should investors buy Carnival stock while the cruise industry is still navigating troubled waters?

Here is what you need to know before setting sail with this stock.

Carnival is priced like the doors will close

Carnival's operations and stock went through the wringer during the pandemic; an isolated space such as a cruise ship is arguably the best environment for a virus to do its worst, so the business virtually shut down throughout the pandemic to avoid spreading the contagious virus.

Cruise lines require a lot of spending on the ships, their maintenance, and the crews that work them. Shutting off revenue threatened to bankrupt the company, which was reflected in its stock price when it plunged from $50 to under $10 in March 2020.

CCL Chart

CCL data by YCharts

Fast forward to today, and the stock saw some recovery in 2021 as vaccines were introduced but is now trading back under $10 a share, the same low from when the business was in danger of going under.

But Carnival's business is far from ruined

However, the fundamentals behind Carnival are far different this time around. Carnival recently issued a 2022 second-quarter update and gave several clues that the company's getting back on its feet.

For starters, Carnival is steadily ramping up its operations and now has more than 90% of its fleet back in service. These ships aren't yet at full capacity; occupancy in Q2 was 69%, up from 54% the prior quarter. But it was enough to generate $2.4 billion in Q2 revenue from virtually zero in Q2 2021. The company's cash from operations turned positive in April.

Management noted in the Q2 earnings release:

Booking volumes for all future sailings during the second quarter of 2022 were nearly double the booking volumes during the first quarter of 2022. ... Booking volumes for the second half of 2022 sailings, since the beginning of April, have been higher than 2019 levels.

Carnival should be on solid ground now that operating cash flow has turned positive and travel activity is picking up. The company's sitting on a massive $7.2 billion pile of cash and short-term investments, far more than the $518 million with which it entered 2020, leaving it vulnerable when the pandemic hit.

Don't miss this big catch...

However, investors should temper their expectations; despite shares being down significantly from their pre-pandemic levels, it's not likely that Carnival's stock will soar to $50 anytime soon.

For starters, Carnival had to take dramatic action to survive COVID-19, which came with consequences. The chart below shows the effect of Carnival's survival tactics; it had to issue a ton of new stock to raise money, and outstanding shares increased by roughly 500 million since 2020.

Second, Carnival had to borrow; long-term debt was about $9.6 billion entering 2020 but stands at $29.2 billion today.

The result is a bloated enterprise value, the company's market value, and net debt (total debt minus cash) that values Carnival at just under its pre-pandemic levels, even with low shares. In other words, Carnival's debt and new shares have already priced in the rebound.

CCL Shares Outstanding Chart

CCL Shares Outstanding data by YCharts

Carnival will need to grow, or investors will need to pay a significantly higher valuation for shares to generate significant short-term returns. Anything is possible, but I would not make that assumption, considering that Carnival is still trying to get on its feet again.

Investors might do better staying on the sidelines until the business begins making a profit and management can start paying down some of that debt. There might be better opportunities in this bear market where so many stocks are trading near lows.