Carnival (CCL 0.33%) stock has enthralled investors ever since it tanked when operations essentially shut down at the beginning of the pandemic.
It managed to stay solvent through some financial maneuvering, and the future looks good. Carnival stock is now up more than 90% in 2023. Let's see why it's still an exciting stock, and whether it makes sense to invest in it.
Is Carnival a meme stock?
Carnival was a fairly boring and definitely lackluster stock prior to the pandemic, losing about 24% in the five years leading up to it. It gained prominence as a meme stock when retail investors began to have outsize influence and it became unclear whether Carnival could stick it out. Since then, it's had a wild ride.
The company has borrowed money in the form of both debt and equity to keep going, and it's now saddled with $34 billion in long-term debt and heavily diluted shares.
But it looks like that's paid off. Revenue is climbing, and it's almost back to pre-pandemic levels.
CCL Revenue (Quarterly) data by YCharts
Why there's momentum right now
The first-quarter report in March demonstrated solid progress, with revenue at 95% of 2019 levels and the highest bookings in company history. Results were better than expected, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $382 million, way above the higher end of guidance, which was $350 million.
Although net loss came in at $693 million, that was significantly better than the $1.9 billion loss last year. Loss per share of $0.55 topped the average analyst target of $0.60. Management is expecting 100% occupancy for the 2023 full year, returning to that metric's historical levels this summer.
But the stock price has really been soaring over the past month. A lot of that is due to momentum surrounding the second-quarter results, which are expected to be released later this month.
On top of that, two Wall Street analysts changed their ratings from hold to buy, and the consensus has changed from hold to overweight, a softer buy signal.
Finally, management has been buying back shares at a rapid pace over the past two months, setting up the financials to look better in the second-quarter report. Investors like share buybacks because they demonstrate that management is invested in its own company, and because they increase the per-share value of earnings. They also concentrate the diluted shares, adding value to each share.
Is Carnival a great long-term stock?
Even at the recently higher price, Carnival stock trades at a price-to-sales ratio of 1.2, which is very cheap. However, that's only logical for a company whose revenue is still lower than it was a few years ago.
There's a lot of potential here in the near term, but there's still a tremendous amount of risk as Carnival struggles to get back to net profits and pay down its huge debt. That risk is priced into the stock to some degree. Cash from operations turned positive in the first quarter, and management said this would be the source of funds to pay down debt over time, which is another factor in its favor.
Historically, Carnival stock has outperformed the S&P 500. There's a good chance at some point it can get back to that, and I mean for longer than the year-to-date gains, which are seriously outperforming the benchmark index.
It makes sense that investors are excited about Carnival right now, but it doesn't make sense to jump on the bandwagon just because a stock looks exciting. At this point, Carnival stock presents an opportunity, but only for risk-tolerant investors. Everyone else should keep watching, though, because it could become a stronger buy soon.
