Carnival (CCL -0.66%) was decimated by the pandemic, but its business has come surging back. And investors are noticing. The shares have more than doubled since the start of 2023, even though they remain an eye-watering 77% below their all-time high from January 2018.

Is it time to buy this top cruise line stock hand over fist with $100 right now? The bullish sentiment might not be enough to overturn the negative factors.

Momentum and valuation

Carnival reported jaw-dropping 73% and 68% sales declines in fiscal 2020 and 2021, respectively, due to the coronavirus health crisis restricting cruise ships from operating. But the business has come roaring back.

In fiscal 2023 (ended Nov. 30), the company reported record annual revenue of $21.6 billion, which was up 77% year over year and slightly higher than in pre-pandemic fiscal 2019. Demand is incredibly strong.

Carnival has clear visibility into near-term demand trends, given that travelers pay deposits for trips that are booked well ahead of the scheduled departure time. In the fiscal fourth quarter, the leadership team reported record customer deposits of $6.4 billion.

"We entered the year with the best booked position we have ever seen, and now have nearly two-thirds of our occupancy already on the books for 2024, at considerably higher prices," CEO Josh Weinstein said in the earnings release.

There has been substantial pent-up demand over the past few years. Consensus analyst estimates call for revenue to rise at an annualized clip of over 6% over the next three fiscal years, so there are still gains to be had.

Even though the stock has soared in the last 14 months, it doesn't look expensive by any stretch of the imagination. It trades at a forward price-to-earnings (P/E) ratio of 16.4 (as of March 8). That's below the broader S&P 500's forward P/E multiple of 21.1.

Reasons to be cautious

It's understandable if investors want to ride Carnival's momentum in the hopes of achieving strong portfolio returns. But despite the positive traits, I'm still not convinced that this is a smart investment to make.

One reason I hold this view is because of just how cyclical a cruise line operator is. Of course, when the economy is booming, unemployment is low, and consumer confidence is high, spending money for your family to go on one of Carnival's trips can be in the budget. But in weaker economic times, taking a cruise is way down on the priority list.

While the U.S. hasn't officially hit a recession yet, there are reasons to be cautious. Credit card debt has never been higher, and defaults are trending up. Major retailers are reporting softer demand trends. And the Treasury yield curve has been inverted since late 2022, which typically precedes an economic downturn.

This should concern Carnival shareholders, as it can lead to lower sales. It also doesn't help that the business hasn't posted a full-year net profit since fiscal 2019.

Perhaps nothing is as alarming as Carnival's balance sheet. As of Nov. 30, it carried nearly $31 billion of long-term debt, compared to just $2.4 billion of cash. In a recessionary scenario, it's very likely that the business will need to tap capital markets to raise money, which would be a defensive move that the market wouldn't like to see.

To its credit, though, Carnival has worked to shrink its debt burden, which was reduced by $4.6 billion in the last fiscal year. But there is clearly a lot of work to be done to get to pre-pandemic levels. This is still an overleveraged situation.

Buying Carnival stock is a risky move.