Trading under $14 at Thursday's close, Carnival (CCL 0.67%) is well below its 52-week high of $51.94. Investors looking at that low price might be tempted to buy the stock to bet on a rebound in the cruise industry when the pandemic subsides. But that would be a mistake.

Carnival's stock is cheap for a reason: It offers astronomical risk for limited potential reward.

Evidence from Europe suggests it isn't safe to reopen the cruise industry at this stage in the pandemic. And Carnival has additional, company-specific challenges because of its tarnished brand and deteriorating balance sheet. Let's find out a bit more about why this stock is a bad bet for investors.

Cruise ship sailing in stormy waters.

Image source: Getty Images.

1. Cruising is still dangerous 

Several European countries have lifted restrictions on cruising, and so far the results suggest that might have been a mistake. Although Europe has contained the coronavirus pandemic much better than the U.S., cruising is still an extremely effective way to spread COVID-19.

In late July, a coronavirus outbreak hit the MS Roald Amundsen, a Norwegian cruise ship sailing in the Arctic. At least 36 cruise members and five guests have so far tested positive, and infected passengers may have spread the virus to multiple Norwegian towns on the itinerary.

Hurtigruten, the cruise operator that owns the Amundsen, was one of the first European companies to resume sailing after the pandemic. And this outbreak demonstrates that social distancing measures may not be enough to prevent outbreaks on cruise ships. Hurtigruten has regrounded all its vessels until further notice, and Norway has imposed additional restrictions on cruise ships operating in the country.

While Carnival is not directly affected by the Norwegian outbreak, this is a massive blow to the industry that could prompt U.S. authorities to extend the current no-sail order, which is set to expire on Sept. 30. The government has already extended the no-sail order several times during the course of the pandemic.

2. Carnival's brand is tarnished 

Even when U.S. cruising restrictions are lifted, Carnival may suffer some reputational damage due to the high number of outbreaks it experienced.

The cruise operator was hit unusually hard by the coronavirus pandemic, with three of the worst cruise ship outbreaks occurring on its Princess line of cruises. In February, the Diamond Princess had 712 infections and 14 fatalities. And in March, the Grand Princess and Ruby Princess lost seven and 22 passengers respectively -- more than any other cruise ship operator.

Princess President Jan Swartz "doesn't really know" why COVID-19 has been affecting her company so heavily. But it may have had something to do with the company's failure to enforce social distancing in the early stages of the pandemic.

Either way, Princess Cruises may suffer brand damage because of its failure to protect customers from COVID-19. Princess Cruises has extended its pause on operations until Dec. 15 -- a full two and a half months after the federal restrictions are set to expire.

3. Carnival's balance sheet is deteriorating 

Even when U.S. cruise restrictions are lifted, Carnival stock will struggle to bounce back from the crisis because of its heavy debt load and dilution. Management has taken on high-interest loans that will suppress the company's cash flow and potential equity growth over the long term.

Most recently, Carnival announced the closing of a $775 million, 10.5% note along with a 425 million euro, 10.125% note -- both due in 2026. This latest capital raise follows the closing of a $1.86 billion and 800 million euro term loan facility in June.

In the second quarter of Carnival's fiscal 2020 (which runs from March 1 to May 31), the company reported $14.9 billion in long-term debt, compared to just $6.9 billion in cash. Investors can expect Carnival's balance sheet to continue to deteriorate in the second half of the year, and this will put pressure on the stock and potentially increase the risk of bankruptcy if the industry doesn't recover as quickly as expected.