Carnival's (CCL -4.62%) stock plunged nearly 50% over the past 12 months as the cruise line operator's long-awaited post-pandemic recovery was challenged by inflation, its exit from Russia, and other macroeconomic headwinds.

However, that sell-off has also reduced its enterprise value to just 2 times this year's sales and 10 times its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Could Carnival be a good turnaround play for patient investors?

Let's review its past struggles and see where its stock might be headed over the next 12 months.

Two couples take photos on a beach with a cruise ship in the background.

Image source: Getty Images.

Surviving two of its worst years in recent history

Carnival's revenue plunged in fiscal 2020 and fiscal 2021 (ended in November) as people stopped taking cruises during the COVID-19 pandemic. Its occupancy percentage remained high in 2020 as it only filled up its vessels that hadn't been suspended, but even those remaining vessels couldn't attract enough passengers in 2021.






Q1 2023

Revenue growth (YOY)






Passengers carried growth (YOY)






Occupancy percentage






Data source: Carnival. YOY = Year-over-year.

However, Carnival experienced a strong recovery in 2022 as people started traveling again. Its occupancy rates continued to climb, even as inflation and other macro headwinds curbed travel-related spending.

The company expects that recovery to continue this summer and boost its full-year occupancy percentage above 100%. It didn't provide an exact revenue forecast, but analysts expect a 73% jump to nearly $21 billion in fiscal 2023 -- which would finally exceed its pre-pandemic revenue of $20.8 billion in fiscal 2019 -- followed by 11% growth to $23.4 billion in fiscal 2024.

By comparison, analysts expect Royal Caribbean and Norwegian Cruise Line to grow their revenues by 47% and 76%, respectively, in 2023. 

But what about those net losses?

Carnival's top-line growth suggests its business is finally stabilizing, but it's also been unprofitable on a generally accepted accounting principles (GAAP) basis since fiscal 2020. It posted a net loss of $10.2 billion that year, but it narrowed that loss to $9.5 billion in fiscal 2021 and $6.1 billion in fiscal 2022.

Analysts anticipate a much narrower net loss of $412 million in fiscal 2023, followed by a net profit of $1.1 billion in fiscal 2024. On an adjusted EBITDA basis, Carnival expects to turn profitable again in fiscal 2023, with a profit of $3.9 billion to $4.9 billion (even after absorbing a $0.5 billion impact from higher fuel prices and currency headwinds), compared to its adjusted EBITDA loss of $2.1 billion in fiscal 2022. That matches analysts' expectations for a positive adjusted EBITDA of $4.2 billion.

That outlook is encouraging, but Royal Caribbean already generated a positive full-year adjusted EBITDA in 2022, and analysts expect it to return to profitability on a GAAP basis this year. Norwegian Cruise Line posted adjusted EBITDA and GAAP losses in 2022, but it's expected to generate profits by both measures in 2023. Those sunnier forecasts suggest the near-term headwinds for the cruise line sector have largely dissipated -- even if the broader economy remains shaky.

However, investors should note that Carnival's debt levels more than tripled throughout the COVID-19 crisis. It ended the first quarter of fiscal 2023 with $32.7 billion in long-term debt, compared to $9.7 billion at the end of fiscal 2019, which gives it a staggering debt-to-equity ratio of 5.6. That's also nearly six times higher than its $5.5 billion in cash and equivalents.

Carnival won't go bankrupt anytime soon; it still has enough cash on hand to cover its $1.6 billion in annual interest payments, and only $2.2 billion of its long-term debt matures within the next 12 months. However, that high leverage could make Carnival an unappealing stock to own as long as interest rates keep climbing.

Where will Carnival's stock be in a year?

Carnival's stock might seem cheap right now, but its massive debt and the overall macro uncertainties will hold its stock back. I believe its valuations could limit its downside potential, but I don't expect it to beat the market over the next 12 months.