The Reward of Buying Carnival Shares Isn’t Worth the Risk

You may have missed it in the jumble of other news, but Carnival (NYSE:CCL) is sailing again. Let’s be clear, it’s only one cruise in one location (northern Italy). And there’s no question this cruise comes with a gigantic “if” attached to it. But you have to start somewhere. And for investors in CCL stock, something is better than nothing.

carnival cruise (CCL) ship on the water
Source: Ruth Peterkin /

Now if you took a chance on CCL stock back in April when the stock was trading for $7.97 per share, you’re sitting on a gain of 128%. However, that was somewhat expected. Even at that time, most analysts did not suggest that Carnival didn’t have the liquidity to make it through an entire year of zero revenue.

Instead, the real problem that faces Carnival shareholders is that even if the worst is behind the company, what can they realistically expect in terms of growth?

Despite Everything, Demand Exists

Every time I’m asked to write about a cruise line stock, I check to see where the company stands in terms of future bookings. The last time I wrote about Carnival, I saw the company was reporting approximately $2.9 billion in 2021 bookings. Of course, that’s not even 15% of the company’s total revenue in 2019.

But there was a news item that caught my attention this week. CNBC recently interviewed Gina Sanchez of the analyst firm Chantico Global. Sanchez cited a Los Angeles Times survey that showed 2021 cruise line bookings are 40% higher than they were in 2019.

Of course, bookings don’t translate to actual revenue until passengers set foot on the ship. However, it’s entirely possible that passengers will continue to reschedule their cruises. And it’s possible they will cancel their cruises.

Full disclosure, I don’t think I’d get on a cruise ship until there’s a vaccine or antiviral treatment.  Even without the overlay of Covid-19, I don’t long for a cruise. But you can be as cynical as you’d like, you can’t deny there’s demand.

The History of CCL Stock Is Tough to Ignore

Lou Carlozo wrote recently that history has not been kind to Carnival shareholders. In the 17 years spanning 1999 through 2016, the stock basically wound up in the same place. Sure, there were some peaks and valleys. This time period spanned not only 9/11 but the Great Recession.  However, neither of those calamities were the existential threat that is being created by the novel coronavirus.

Cruise ships have always been a breeding ground for passing along contagious illnesses. But for all the sound and fury directed against them, people have kept sailing. And there are many, many repeat customers.

But this time, it’s different. It’s not Carnival’s fault. But it’s going to be very difficult to see cruise ships traveling at full capacity without a vaccine. Yes, rapid testing may be coming. And theoretically, if passengers are tested and then the cruise ship becomes their “bubble,” there’s a chance it could work. But that’s a big if, and unlike the bubbles that exist for live sports, it’s hard to just evacuate a cruise ship.

Carnival Is Sitting on a Ton of Cash

Carnival continues to burn through approximately $650 million per month. That’s an improvement over where they started. And they have a war chest of approximately $7.6 billion which the company claims could be as high as $10 billion.

But investors already knew insolvency wasn’t the issue. It isn’t even demand. The overall issue is safety. Carnival has to give passengers a reasonable belief that it can successfully keep the virus off its ship. If it does, there could be a release of pent-up demand on a large scale.

But even if that provides a catalyst for CCL stock, the company still faces a long, slow climb, and there could easily be setbacks along the way. All of that leads me to believe that a gain of 128% might actually be pricing in a new normal. I would stay away from Carnival until there is clear evidence that it will have reliable revenue.

On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for Investor Place since 2019.

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