The novel coronavirus forced Carnival (NYSE:CCL) to pause its North American cruise ships on March 13, and the company has been sitting in limbo ever since. The company has lost hundreds of millions of dollars and CCL stock has plunged accordingly.
As a result, one of the big questions surrounding CCL stock is whether investors should buy-in on the drop. The company is down 71% since the beginning of the year.
It’s unclear whether or not the stock will rebound anytime soon, because, at this point, it’s not a given that any of the stocks hit hardest by the coronavirus will go back up. Here are four things to consider before investing in CCL stock.
Damaged Financials Hurt CCL Stock
One of the biggest problems CCL stock faces is its weakened financial position. The company already had over $11 billion in debt heading into the coronavirus pandemic.
And once the no-sail order was implemented, the company was forced to take on more debt to stay afloat. Since March, Carnival raised $6.25 billion in secured notes, convertible notes, and stock, all due in 2023.
With this kind of debt, the company’s revenue really needs to exceed its numbers from three months ago, but this is unlikely, due to the various restrictions holding it back.
States are slowly starting to reopen the economy, and eventually, cruise lines will be able to resume sailing as well. But one of the biggest challenges for all companies right now is the increased restrictions due to social distancing.
Social distancing brings an added layer of complexity abroad cruises ships, where buffets and crowded spaces have always been the norm. Carnival will have to comply with mandatory temperature scans, medical screenings, and a decreased capacity on board for a while.
And older adults may be required to submit paperwork stating that they are healthy enough to travel. Carnival and other cruise ships can accommodate these new guidelines, but it will likely put a strain on their revenue and resources for some time.
Upsides and Downsides for Carnival Stock
Carnival announced that eight of its ships will resume sailing on Aug. 1. The company will start small with eight ships; three will travel out of Galveston, three out of Miami, and two out of Port Canaveral. The remainder of the fleet will hold its operations until after Aug. 31.
A surprising thing happened after the company notified its customers that a limited number of cruises would return in August its bookings rose about 600%. This is more than the company booked in the spring of 2019.
According to one travel agency, customers are “not a bit concerned about traveling at this time.” In fact, many are reportedly looking forward to doing something fun after months under a stay-at-home order.
This indicates that in spite of the negative media attention surrounding the coronavirus, the demand for cruises could quickly resume.
The increase in bookings is a positive sign for Carnival, but there is still a lot of uncertainty surrounding cruise lines and the travel industry as a whole. Even if customer demand returns stronger than before, there’s no guarantee cruise ships will set sail on Aug. 1.
Carnival will continue working with the CDC and other government agencies to find a way to safely resume operations. But if there is a sudden spike in coronavirus cases, or if a large number of cruise ships passengers take ill while on board, Carnival could find its operations temporarily halted once again.
Bottom Line on CCL Stock
Unfortunately, there is just too much uncertainty right now regarding the virus to make a prediction about what will happen with CCL stock or any other cruise lines. The virus could make a stronger comeback during cold and flu season and shut down the cruise industry once again.
For the time being, it’s probably best to hold off on investing in CCL stock. Given the company’s weakened financials and the ongoing uncertainty surrounding the coronavirus, investing in Carnival is just too much of a gamble right now.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans, and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.