What happened
Share of Carnival (CCL 2.70%) Stock rose 22% in May, according to data provided by S&P Global Market Intelligence. There wasn't a specific news item that sent the stock rising, but a variety of positive factors generated momentum around the stock.
So what
Carnival Stock was crushed by the pandemic, and it's still not back to where it was prior. However, it's making strong progress, and these kinds of turnaround stories often capture investor interest since they present lucrative opportunities if the turnaround actually happens.
Carnival took many actions to stay afloat during the rough times when nobody was cruising, and while it has managed to stay upright, it has come at a high cost. It issued several rounds of new shares to pay off debt when revenue wasn't coming in, diluting its shares outstanding while debt soared.
CCL Total Long Term Debt (Annual) data by YCharts
But it looks like the situation is beginning to show a real change. Revenue in the 2023 first quarter was $4.4 billion, or 95% of 2019 levels. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $382 million, topping the high end of management's guidance of $250 million to $350 million. Net loss of $690 million, while still staggeringly high, was better than guidance of $750 million to $850 million. Cash from operations turned positive, and management said that would become a catalyst for paying down debt.
Perhaps the best part of the report was that it had the highest-ever quarterly bookings. That's the best sign of a possible turnaround, and if bookings stay strong, the company's financial condition could rapidly improve.
Over the past two months, the company has been buying back shares to reverse dilution as the situation gets better. This makes each share more powerful and increases the chances of better earnings-per-share results.
Now what
Carnival stock is still nearly 80% lower than it was five years ago. Buying it now presents both high risk and big opportunity. It's cheap from a valuation standpoint, trading at a price-to-trailing-12-month-sales ratio of 1. It certainly looks like things are moving in the right direction.
However, it's still posting massive losses, and it's going to take time until Carnival is financially healthy. Risk-tolerant investors may want to take a small position, but for most investors, it's still a stock to keep on your watch list.
