Carnival (CCL -4.08%) and its peers have experienced an unprecedented disruption in their businesses. The 15-month shutdown caused great harm to the cruise industry, and it will likely take years to repair the damage caused by the shutdown. And when it comes to Carnival specifically, investors need to pay more attention to competition from a source that most will likely overlook. Let's dive in.

What happened to Carnival's stock?

As most travel investors know, the rise of COVID-19 and the spread of the virus led to a "no-sail order" from the CDC in March 2020. While that was supposed to last just 30 days, numerous extensions meant that cruise ships did not sail again in the U.S. until June 2021.

During the shutdown, Carnival's revenue dropped by more than 99%. To keep its company in business, it borrowed a considerable sum. By the end of the third quarter of fiscal 2022 (which ended Aug. 31), total debt would rise to $34.8 billion, more than triple the debt in Q3 of fiscal 2019, which came in at under $11 billion. That amounts to a crushing burden for a company with only $8.4 billion in stockholders' equity (the value of its assets minus its liabilities).

Carnival also consistently reported profits before the pandemic. Now, more than a year after it resumed operations, its losses continue. In the first nine months of 2022, Carnival lost $4.5 billion. During the same period in fiscal 2021, Carnival reported a net loss of $6.9 billion, a time when it had barely begun to return to the seas.

Still, improvements are coming steadily. The $8.3 billion in revenue for the first three quarters of fiscal 2022 is just over half of the levels reported at the same time in fiscal 2019. Also, most analysts forecast a return to profitability in fiscal 2023, and the $7 billion in cash on Carnival's balance sheet means it probably can fund itself until it turns a profit.

The problem with Carnival's stock

The challenge Carnival stock will have is with its peers. That goes far beyond the competition from cruise line stocks like Royal Caribbean Cruises or Norwegian Cruise Line Holdings. Carnival remains the industry leader, and that dynamic has not changed post-pandemic. Royal Caribbean and Norwegian also took on billions in debt to keep their businesses afloat.

The problem comes with competition from other travel stocks, or even stocks in general. In the end, investors can choose which stocks to buy, regardless of industry. And even if one decides they must own travel stocks, the industry also consists of sub-sectors involving airlines, hotels, vacation rentals, casinos, and other areas.

Of all these sub-sectors, only the cruise industry dealt with a total shutdown that lasted more than a year. This means that other sub-sectors did not have to take on as much debt to stay in business.

It also means that Carnival will probably prioritize debt repayment over the next few years. This reduces the chances it will buy shares, issue dividends, or reinvest heavily into its business, actions that typically take stock prices higher.

Making sense of Carnival stock

Carnival looks poised to survive the pandemic, and it should become profitable in the near term. However, Carnival stock must compete with other stocks, which do not face such a heavy debt burden. Also, Carnival's need to spend heavily to service the debt means it will engage in fewer activities that tend to raise stock prices.

In the end, it comes down to investment choices. With so many stocks offering higher growth rates without the heavy debt burden, fewer investors may consider Carnival stock a bear market buy.