Carnival Stock (CCL 1.89%)(CUK +6.55%) gained 31% in November, according to data from S&P Global Market Intelligence. It's benefiting from investor confidence as the Federal Reserve has made positive comments about its handling of interest rates and its pause in increases.
The cruise industry is back in business
Carnival became a meme-stock star when the travel industry dissolved almost overnight amid a global pandemic. It's the largest cruise operator in the world, and while revenue wasn't coming in, it had the most to gain from a rebound.
It has now demonstrated a sustained uptick in operations, with record third-quarter revenue of $6.9 billion and ongoing elevated booking levels. Its net profit for the quarter, $1 billion for the period ended Aug. 31, was its first since operations ceased in 2020.
NYSE: CCL
Key Data Points
There are two main problems heading into this new recovery phase. One is that Carnival racked up tons of debt in as it sought to stay solvent, and it's in a precarious financial position until it pays off that debt. It has paid off more than $4 billion through the third quarter, and it has about $24 billion to go until it reaches pre-pandemic debt levels. It's unlikely to be faced with another challenge like COVID-19, but it now has less cash to work with as it pays off the debt and less wiggle room for new issues.
The second problem is that investors were betting on the travel giant's recovery. Now that it has recovered, revenue and profit increases aren't as massive or exciting.
Keeping it up in 2024
Carnival stock fell after investors realized the rebound story is over and all that remains from it is a pile of debt. But that's a short-term approach to an industry-leading and capital-efficient company. Carnival is carefully balancing growth plans and debt removal, and bookings are still robust well into the future.
What led to increased investor enthusiasm is the Federal Reserve's pause on interest-rate increases and its hints that it could consider lowering rates in May. Because of its large debt load, Carnival is highly susceptible to interest-rate trends, and lower interest rates will affect its balance sheet.
Carnival stock trades at an equivalent to trailing-12-month sales. That means its market cap is almost the same as its trailing-12-month sales figures.
CCL PS Ratio data by YCharts
Carnival is demonstrating strong leadership and financial efficiency, and it has long-term growth drivers. It looks like a bargain right now.
