What happened

Shares of Carnival Cruise Lines (CCL 6.63%) fell 13.3% in September, according to data from S&P Global Market Intelligence.

The highly indebted cruise line stock fell throughout the month as long-term interest rates rose. But a final drop occurred on the last day of September following the company's third-quarter earnings report.

While Carnival's numbers came in ahead of expectations and demand remains strong, investors focused on rising costs, as well as a potential pushed-out timeline for the company's debt paydown.

So what

Carnival is actually seeing strong demand and pricing power for cruises, as consumers look to travel in an efficient manner following the pandemic. In its earnings report, the company handily beat estimates for revenue and earnings per share.

However, Carnival doesn't hedge its oil exposure, instead focusing on making its fleet more efficient. Since oil prices have risen in recent months, the company gave tepid profit guidance for Q4. In addition, the strengthening dollar will also lower earnings in the upcoming quarter. Meanwhile, management noted some costs may increase next year, such as dry-docking costs, labor costs, and the acquisition of three new ships.

While advanced bookings are also super-strong, and management believes it will grow revenue faster than costs, investors decided to sell Carnival amid the renewed uncertainty.

Interest rates have also gone up over the past month, putting pressure on the stocks of highly indebted companies. Most investors know by now that Carnival is on a multiyear quest to dig itself out of the debt pile it amassed during the pandemic. So, if that debt-paydown happens slower than thought, it can increase risk to the company.

Given that Carnival is actually still up a lot on the year -- albeit far below pre-pandemic levels -- investors sold the stock on fears of what was to come in the quarters ahead.

Now what

Highly indebted companies are inherently risky. However, for high-risk and aggressive investors, Carnival and the other major cruise lines could also offer significant upside.

This would come from the paydown of debt, which would transfer more of these companies' enterprise value from debtholders to shareholders and then a potential rerating of that enterprise value higher due to lower risks for the company. Meanwhile, cruises are quite popular at the moment, as they offer affordable alternatives to land-based travel, which has also gotten much more expensive.

However, with over $31 billion of debt, Carnival clearly has a long way to dig. That means whenever oil prices rise or the health of the economy comes into question, the stock can see a big pullback, as we saw last month.