Carnival (NYSE:CCL) took a hit to the hull last Thursday as profits slid 19%. Revenue grew a modest 2.7% for the quarter, and net yields (an industry measure of revenue per passenger) were also up slightly, but so were costs, primarily because of a 63% increase in fuel expense.

Bookings remain off course in the Caribbean (which represent close to 50% of the company's bookings) because of ongoing hurricane concerns and damage to major ports such as Cozumel and New Orleans from last year's hurricanes. Bookings in Europe and Alaska continued to be strong, however. As a result of near-term difficulties, management reduced fiscal 2006 earnings guidance to a previous range of $2.90 to $3 versus $3 to $3.10. And to make matters worse, one of its Star Princess ships reported a fire onboard in the Caribbean on March 23 that resulted in a death and a number of injuries. As a result, shares dove nearly 5% last week and are down 10% for the year.

As many Fools know, short-term pain in stock performance can lead to an opportunity to hop on board a compelling investment opportunity and reap long-term gains. Carnival may represent one of those opportunities: It has a leading market share in the cruise industry, impressive 20% net margins, and strong historical growth and free cash flow. Management is also known as disciplined in terms of cost control and capital structure. And it has demographics in its favor because of aging baby boomers and expansion opportunities in Europe and China.

Carnival is frequently compared with the No. 2 cruise company Royal Caribbean (NYSE:RCL). Historically, Carnival has always traded at a 10% to 20% premium to its competitor. Currently, it trades at about 16 times next year's earnings, while Royal Caribbean trades at 12 times. Carnival is known as the better-run company for reasons such as a more conservative balance sheet and higher net margins. Over the past five years, the two stocks have performed about the same, but over the long term, Carnival has left Royal Caribbean in its wake.

Risks include continued high fuel costs, with sudden spikes in fuel having a larger adverse effect on earnings, as it did this quarter. Additionally, terrorist attacks or geopolitical tension tend to hit leisure stocks pretty hard and could hurt Royal Caribbean much harder on account of higher debt levels. The shares usually recover, as they did after Sept. 11, 2001, but they can still be quite volatile. Finally, economic fluctuations influence the amount of discretionary income consumers can spend on cruises.

Indeed, Carnival's results will always be affected by weather, fuel, global politics, and economic cycles. However, the long-term story for Carnival has been one of steady and profitable growth. As the shares are currently trading near their 52-week low after what appears to be an overreaction to weaker near-term results, now just may be a good time to take a closer look at this one. The current dividend yield of 2.1% is another benefit to consider.

One final thing worth noting is that Carnival is a dual-listed company. As a result of a merger with P&O Princess of England in 2003, Carnival plc (NYSE:CUK) shares trade both in London and in the U.S. as an ADR. This means that two companies still exist, but they share a single management team, board of directors, and operate as a "single economic enterprise," according to the company. As one might expect, the CUK shares are much less liquid, but both trade at a similar valuation.

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Fool contributor Ryan Fuhrmann has never been on a cruise boat, but The Love Boat is one of his favorite shows. Capt. Stubing is his idol. He has no financial interest in any stocks mentioned (that means he's neither long nor short the shares). Feel free toemail himfor feedback on this article.