With a trailing 12-month price-earnings ratio of 4.4, you’d think Carnival (NYSE:CCL) stock is a steal at the current price point. And, perhaps it is. As the old saying goes, you’re supposed to buy when there’s blood on the streets, right?
There’s a fine line, however, between a bargain and an oncoming train. Timing is everything in the stock market, and the spread of the novel coronavirus has made investment entries and exits all the more difficult.
It’s worth the effort to weigh the pros and cons of owning CCL stock since the payoff could be huge. One thing’s for sure, though: this investment isn’t for everybody. A stomach of steel and the willingness to accept risk are two prerequisites. Do you have what it takes?
A Tragic Turn of Events
Maybe it’s a respect for science, or maybe it’s just a gut reaction. Either way, people are skittish about cruise ships as they’re seen as dangerous in light of the pandemic.
“Cruise ships are not the cause of the virus, nor are they the reason for the spread in society,” declared Carnival CEO Arnold Donald. That might very well be the case, but financial success isn’t about reality. It’s about perception, and it might take a while before the public perceives cruise ships as safe.
Of all the major cruise lines in America, Carnival has basically been targeted as the poster child of bad coronavirus-related publicity. Long-term CCL stock investors won’t soon forget the fateful day when it was announced that Carnival’s Diamond Princess cruise ship had more than 700 infected passengers and crew members.
Approximately 3,700 passengers on board the Diamond Princess were quarantined off the Japanese coast. What was supposed to be a fun vacation cruise quickly turned into a nightmare. Tragically, several passengers passed away after disembarking the cruise ship.
Not long afterwards, Carnival-owned Princess Cruises announced the suspension of all of its operations. CCL stock plunged 31% upon that announcement. California Gov. Gavin Newsom warned cruise-line operators of “the peril of that industry collapsing.” Social-media pundits speculated that the cruise-line market would never recover.
Luring Passengers Back Won’t Be Easy
So far, at least 1,500 coronavirus-related infections and 39 fatalities have been reported in connection with Carnival’s cruise ships. Donald’s rather unsatisfying response feels more like an excuse than a mea culpa in earnest:
“This is a generational global event—it’s unprecedented… Nothing’s perfect, OK? They will say, ‘Wow, these things Carnival did great. These things, 20/20 hindsight, they could’ve done better.’ ”
Clearly, there’s a lot of work to be done before the public truly feels comfortable boarding cruise ships again. Carnival is considered a leader in this business. The success or failure of the entire market could depend on Carnival’s efforts at reputational damage control.
A good first step would be for the company’s CEO to accept responsibility on behalf of his company, with no excuses. The public probably wasn’t comforted much when Donald deflected Carnival’s involvement in the aforementioned tragedy, claiming critics should be “analyzing what New York did to deal with the crisis, what the vice president’s task force did, what the Italians, Chinese, South Koreans, and Japanese did.”
The CEO further added, “We’re a small part of the real story. We’re being pulled along by it.” It would probably be better for the company to accept its role in the tragedy and take proactive measures to prevent its recurrence. Until that happens, it will be awfully hard to turn the ship around and regain the public’s trust.
The Takeaway on CCL Stock
Holding shares of CCL stock could be a painful proposition over the coming weeks. Before Carnival can “right the ship,” it needs to fix its reputational damage. This will take time and might not happen this year. Until then, try to stay on an even keel and think twice before hopping aboard this volatile investment vehicle.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.