In 2023, shares of Carnival (CCL -0.66%) crushed the overall market, as they soared 130%. But this performance didn't do enough for long-term shareholders looking to claw back losses.

If you invested $1,000 five years ago in this cruise line stock, you'd be sitting on a balance of $320 today (as of Jan. 18). This translates to a loss of 68% since January 2019. For comparison's sake, the S&P 500 rose 81% during this same time.

Let's look at what's happened with Carnival in the past and then consider the company's investment merits from today's perspective.

The pandemic's impact

From fiscal 2018 through fiscal 2023 (ended Nov. 30), Carnival's revenue increased at a compound annual rate of 2.7%, which doesn't tell us much, though we know that the last five-year period was anything but a normal one for the broader economy. In particular, it was a terrible time for the cruise industry. The coronavirus pandemic dealt a massive blow to Carnival's business.

Company sales declined 73% and 66% in fiscal 2020 and 2021, respectively. With restrictions placed on travel, coupled with ongoing health concerns, especially in close quarters like a cruise ship, it made sense that people didn't care to spend money on these types of trips during the pandemic.

The revenue drop led to financial troubles. Carnival went from posting a positive net income of $3.2 billion in fiscal 2018 to reporting a huge net loss of more than $10 billion in fiscal 2020. This unfavorable position forced management to turn to the capital markets to raise cash on numerous occasions.

Strong demand trends

But things have been trending in the right direction in the past couple of years. With the health crisis in the rearview mirror, Carnival is showing signs of life.

Last fiscal year showed that the company is benefiting from strong momentum. Carnival recorded revenue of $21.6 billion, which was not only a record, but it represented 77% growth from fiscal 2022. Bookings for the current year have also been incredibly strong.

Even more encouraging, Carnival is inching closer to being in the black. Net losses totaled just $74 million last fiscal year, down from $6.1 billion in 2022.

Is Carnival stock a buy now?

Carnival's ability to weather the negative impacts of the pandemic and ride a wave of solid results is a positive sign. Consequently, investors might be ready to add the company to their portfolios.

I believe this would be a mistake. There are some obvious reasons that force me to hesitate to buy Carnival stock.

We can't ignore the fact that the company can be very cyclical, given that cruise ships can be categorized as a discretionary purchase for consumers. So, as we look to 2024, there's still the possibility that the global economy will experience a recession. The fact that the Treasury yield curve has been inverted since the summer of 2022, something that usually precedes an economic downturn, is a sign that things will get difficult in the near term. I'm not confident that Carnival can continue its strong growth in this type of environment.

I'm also not comfortable with its financial situation. As of Nov. 30, the business carried over $30 billion of debt on the balance sheet, showcasing how capital-intensive an operation running a global cruise line is. Buying and maintaining these large vessels is expensive, and this isn't going to change anytime soon.

To its credit, the leadership team is focused on paying down this burden, but it's still massive, no doubt. And this adds a material amount of financial risk to the equation.

Warren Buffett would likely agree that Carnival makes for a terrible investment. He once posited that owning capital-intensive businesses during inflationary periods, or at any time really, is usually a poor decision. That's why I think it's best to avoid the stock.