If any asset represents the economic and cultural toll wrought by the novel coronavirus, it’s Carnival (NYSE:CCL) stock. The fiscal loss and the wild price swings suggest a company, and a travel/entertainment industry, in crisis mode.
On the other hand, maybe the world’s biggest cruise operator can turn the ship around. Besides, as Baron Rothschild once said, “The time to buy is when there’s blood in the streets.”
Can you handle a considerable amount of risk? If so, then CCL stock might yield sizable returns. With this trade there are only two outcomes: to borrow a phrase from esteemed investor Fifty Cent, you’ll either “get rich or die tryin’.”
Man the Lifeboats
It hasn’t exactly been smooth sailing for CCL stockholders in recent years. Back in January 2018, the share price stood above $71 and there was no apparent cause for concern. Then the trade war between the U.S. and China escalated. By the end of 2019, the stock was trading under $50 per share.
Today, CCL stockholders would gladly accept $50 apiece for their shares. The price tumbled below $9, threatening to enter into penny-stock status. The coronavirus was the culprit, of course.
Even with most market sectors suffering, the cruise-ship industry was hit especially hard. The cavalcade of unsettling headlines began when the Diamond Princess was held near the Japanese coast for almost a month.
Next, alongside the Californian coast, infections were discovered on the Grand Princess. Then, tragically, 200 illnesses and four fatalities were discovered on the Holland America ship Zaandam. That ship, which was en route to Fort Lauderdale, Florida, is owned by Carnival.
Along with Zaandam, infections have been reported on other Carnival-owned ships, including the Ruby Princess, Costa Magica, Costa Luminosa and Costa Favolosa. Consequently, the company has halted operations on Carnival’s remaining ships. If enough customers demand cash refunds for their canceled cruises, the capital drain could run well into the billions of dollars.
Is a Turnaround Year Coming?
It’s always a good idea to read the publicly available SEC filings on a company before investing in it. Carnival’s Form 424(b)(5) offers plenty of insights, both negative and positive. In the “negative” column, we can include this lovely tidbit: “We estimate our liquidity requirements … to be approximately on average, $1.0 billion per month.”
That’s the “capital drain” cited earlier. However, there’s also this to consider: “For the two weeks ended March 15, 2020, and on a weighted average basis based on available lower berth days (‘ALBD’), approximately 45% of the guests who have contacted us have accepted future cruise credits in lieu of cash refunds for cancelled voyages.”
So maybe, just maybe, not everyone will demand cash refunds. Perhaps there’s even a light at the end of this long, dark tunnel: “We continue to take future bookings for 2020 and 2021, receiving customer deposits on those bookings.”
That’s actually not as laughable as it sounds.
As reported by analysts at UBS, 2021 could be a resurgent year for the cruise-line industry:
“Booking volume in the last 30 days for 2021 is actually up 9% versus the same time last year … That includes people applying their future cruise credits from sailings that were cancelled this year, but still shows a surprising resilience in desire to book a cruise.”
In other words, cruise enthusiasts are betting on a return to normalcy in 2021. Forward-thinking (and risk-tolerant) investors could conceivably make the same bet. If it pans out, the returns may be substantial.
The Takeaway on CCL Stock
Needless to say (but I’ll go ahead and say it), CCL stock isn’t for everyone. The risks remain elevated (re-read the “$1.0 billion per month” quote for a refresher) and a discounted stock can still get cheaper. That being said, a surprising next-year turnaround story could be in the offing. Just remember that unlike cruise bookings, bad investments don’t offer cash refunds when things go awry.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
