The travel industry has been roaring back this year. Whether you call it pent-up demand, revenge travel, or just a return to normal, people have been traveling in droves this year. Analysts at Morgan Stanley also expect business travel to be back to normal, with corporate travel budgets this year projected to be, on average, at 98% of 2019 levels based on a recent travel survey.

Despite the optimistic outlook for this year, Carnival (CCL -0.66%) stock appears to be running out of steam. The cruise ship stock was a hot buy this year until recently. Share prices are down more than 30% since July. Is this pullback a buying opportunity, or is the stock overpriced and heading lower?

Why Carnival stock could rise

Carnival's business went into recovery mode this year. In its last three fiscal years (which ended in November), the company posted significant losses of more than $6 billion. The pandemic destroyed Carnival's financials, but the good news is the company made it through to the other side, and it recently even posted a profit.

For the three-month period ending Aug. 31, revenue of $6.9 billion rose an impressive 59% year over year. Carnival also posted a profit of just under $1.1 billion, a sizable improvement from the $770 million loss it posted in the same period last year.

Demand is strong enough that cruise lines, including Carnival, are looking at potentially increasing prices. Prices are already up this year, and they could go even higher in 2024. At the very least, it appears that there is no need to offer incentives to get people to book cruises. With strong demand and Carnival also working on reducing its fuel usage by 16% this year, the company should be able to stay in the black for the foreseeable future.

Carnival's stock is still down around 80% over the past five years, so there's plenty of room for the stock's value to continue rising, especially as its financials improve.

Why Carnival's stock might fall

The bearish case on Carnival is that an increase in price could derail the company's growth. Plus the company's debt levels remain high, and Carnival has already incurred $1.6 billion in interest expenses over the past nine months (up from $1.2 billion a year ago). Further rate hikes aren't out of the question, and that could prove burdensome on the company's financials should business slow down.

And data from Morning Consult does indicate that "revenge travel" may finally be coming to an end. According to a recent survey, interest in travel is lower than it was a year ago in many countries. Plus, with student loan payments resuming in the U.S. this month, that's another headwind that could affect discretionary spending in the near term.

An additional headwind is the conflict in Israel, which, if prolonged, could lead to a sharp increase in oil prices, potentially negating some or all of the cost savings Carnival may achieve as a result of reducing fuel usage. 

These are all risks weighing on the company's business and operations, which could potentially put Carnival's bottom line back in the red and lead to more of a decline in the share price.

Should you buy Carnival stock?

Macroeconomic conditions should be a concern for Carnival investors. But with the pandemic no longer threatening a shutdown of travel, the cruise line business is still in much better shape than it was even a year ago. Given the strong demand, and with Carnival seeing room to increase its prices, it has the potential to offset rising costs should it need to do so.

Carnival's business is encouraging, as it looks to have turned a corner and is back to generating profits. Overall, the travel stock looks to be on a much better path, as the risks it is facing now are much more transient than the pandemic was. For investors, this may be a great time to buy the stock, as it still looks poised to climb higher in the future.