Shares of Carnival (CCL 2.32%)(CUK +0.00%) sank 16.5% in October, according to data provided by S&P Global Market Intelligence. Investors seem to think this ship has sailed, and they're moving on to higher-growth stocks.
Carnival stock has gone from high to bye
Carnival has mostly completed its long-awaited recovery from the extended cruise moratorium, and apparently, so has its stock.
In its fiscal 2023 third quarter (which ended Aug. 31), revenue reached a record high of $6.9 billion. Carnival also posted its first net profit since the pandemic began, with more than $1 billion in net income. Demand is strong, with bookings above historical averages through 2024, and at higher prices than in 2023.
NYSE: CCL
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It's also managing through its heavy debt load. Carnival issued large amounts of debt to stay solvent during the crisis, and its outstanding long-term debt remains well above prepandemic levels. But its debt load is already 10% below its peak (down $4 billion), and its payoff efforts included paying off $1.3 billion with early maturities and prepaying another $1.1 billion in its fiscal third quarter. This will save it $300 million in interest expenses.
Still, it ended the quarter with $31 billion in debt, and the company will remain in a precarious position until it brings it down further, since it can't afford much pressure in this financial state.
Management is guiding for more than 100% occupancy rates for the fiscal fourth quarter, although higher fuel costs will weigh on the bottom line. It's expecting an adjusted net loss for the period.
Investors may be missing out on Carnival stock
On the one hand, now that Carnival is back to high sales and high demand, its stock doesn't look as interesting to the retail investing community that launched it into prime meme stock status a few years ago.
On the other hand, its high debt load and struggles with profitability mean it's not the same value stock it was before the pandemic.
In the place where it is right now, it's not generating investor enthusiasm from either side of the coin.
However, things are looking up a bit. The entire market was down in October, and the S&P 500 was declining for most of the month. It began to rebound at month's end as a slew of companies provided positive quarterly earnings updates, buoying market sentiment. Carnival stock has gained 13% since the beginning of November, recouping most of its October losses.
Carnival stock trades at only 0.8 times trailing 12-month sales, a valuation that looks like a bargain. Investors may not give it a much higher valuation while it's sitting on such a high debt load, and considering that its current sky-high demand could come back to earth. Risk-averse investors may want to sit this one out right now. But if you can handle some risk, Carnival should get back to looking like its former self, with increasing revenue and profits, and a market-beating stock price.
