The travel industry has been thriving this year as consumers are still making up for lost time due to the pandemic. And one of the companies that has been doing particularly well is Carnival Corp. (CCL +0.21%). The cruise line operator has been reporting fantastic results this year, and shares of the company are up 87% already in 2023. Is it too late to invest in the stock, or can shares of Carnival continue climbing higher?
The stock is still nowhere near its pre-pandemic valuation
Carnival has been one of the hottest stocks on the market this year, but that doesn't mean investors have recouped all their losses due to the pandemic. In January 2020, shares of Carnival were trading north of $50. Today, the stock remains down around 70% from those levels.
The good news, however, is that the rally might continue as the company has been performing incredibly well.
NYSE: CCL
Key Data Points
Its financials have shown significant improvement
The company last reported earnings on June 26, when it posted some phenomenal numbers. Through the six-month period ended May 31, Carnival's sales totaled $9.3 billion, which is more than double the $4 billion it reported over the same period a year ago. More importantly, its operating loss over the first two quarters shrank from just under $3 billion last year to a loss of only $52 million in 2023.
If the company can continue at this pace and improve both its top and bottom lines, the stock may continue to rally. Based on analyst price targets, Carnival's upside stands at around 17%. But another strong quarter could lead to a fresh round of upgrades, potentially boosting the share price.
It won't take long for investors to see if the company's financials are continuing to improve; Carnival has scheduled its earnings call for Sept. 29, and that is also when it expects to release its latest earnings numbers.
Investors shouldn't ignore its debt levels
Carnival's biggest risk relates to debt. It reported $31.9 billion in long-term debt as of the end of May. That's more than 5 times the value of its current assets ($6.2 billion). It's never a good situation to be carrying that much debt, particularly in a rising interest rate environment.
One part of its financials that looks particularly concerning is Carnival's interest expense. At just under $1.1 billion through the first two quarters of 2023, the company's interest costs are 47% higher than they were this time last year. Carnival says it has liquidity available totaling $7.3 billion and so its situation isn't dire by any means, but if the company can lessen its debt load, that can go a long way in winning over risk-averse investors.
Should you buy Carnival's stock?
Carnival looks to be on the right track. As the company continues to grow and its finances improve, I'm confident it will be able to pay down its debt, alleviating some concerns around the business. It's trading at a relatively modest 16 times its estimated future earnings (based on analysts' expectations) and could make for an excellent growth stock to own. At a reduced price compared to 2020 and travel demand still looking strong, this is a stock I expect can still go higher.
