Cruise stocks such as Carnival (NYSE:CCL) remain a glass-half-full, half-empty scenario for investors. Over the past three months through Jan. 12, CCL stock has a total return of 43.5%. However, over the past 12 months, it’s lost 59% of its value.

In September, I suggested that investors shouldn’t take profits from investors just yet. My rationale had everything to do with insider buying. At the time, its shares were trading close to $18.

I wrote one more article in October about the cruise line.

In it, I suggested that while CCL stock appeared stuck, in five years, you would be glad that you bought its shares under $15. Today, it’s fair to say that if you’ve been able to buy its stock below $20 in five years, you’ll also feel good about your decision.

Here’s why.

An All-Time High of $72.70 for CCL Stock

Carnival’s shares hit an all-time high of $72.70 on Jan. 30, 2018, almost three years to the day. It went on that fiscal year (Nov. 30, 2018 year-end) to set a record for operating income of $3.33 billion on $18.88 billion in revenue.

In terms of passengers carried that year, it wasn’t quite a record with 12.41 million in 2018. The next fiscal year, it carried 12.87 million passengers, and then Covid-19 hit.

So, it’s clear that Carnival’s business was humming before the novel coronavirus wreaking havoc on the entire hospitality and leisure industries.

Interestingly, in fiscal 2018 and 2019, the fuel cost per metric ton consumed was $491 and $472, respectively. According to the U.S. Energy Information Administration, the average price of West Texas Intermediate (WTI) in 2018 was $64 per barrel and $57 in 2019.

In 2020, the average price of a barrel of WTI crude oil was $38.96. It’s expected to rise to $45.78 in 2021, still well below levels set in 2018 and 2019, both record years for the cruise operator.

So, was Carnival to get back to passenger levels that are 50% to 75% the numbers pre-Covid, I don’t think it will have any problems moving into the $30s or even the $40s by the end of 2021.

What Will the Future Bring?

To figure out what a world would look like with passenger numbers 50% to 75% of those in 2019, I’ll look back on years when Carnival carried approximately 6.44 million (2004) to 9.65 million passengers (2011).

This should give me a good idea of the revenues and profitability of Carnival in those years.

In 2004, Carnival had $2.17 billion in operating profit on $9.7 billion in revenue for an operating margin of 22.4%. In 2011, its operating profit was $2.26 billion on $15.79 billion in revenue for an operating margin of 14.3%.

It earned approximately $343.90 in operating profit per passenger in 2004 based on 6.31 million passengers. In 2011, it made approximately $236.40 per passenger based on 9.56 million passengers.

We’ll know soon enough the extent of the damage in fiscal 2020.

Through the first nine months of the year ended Aug. 31, 2020, it had an operating loss of $7.22 billion based on $5.56 billion in revenue. In the same period a year earlier, its operating margin was 17.4%. It finished 2019 with an operating margin of 15.7%.

Through the first nine months of 2020, Carnival had 3.49 million passengers carried, 64% lower than in the same period a year earlier. With no passengers in the final quarter of the year, it will finish 2020 down 73% from 2019’s record-setting year.

The Bottom Line

With Carnival’s U.S. operations paused until at least March 31, 2021, and more cruises getting canceled or postponed in 2021, it seems difficult to imagine that it will return to anywhere near pre-Covid levels in this calendar year.

“We are sorry to disappoint our guests, as we can see from our booking activity that there is clearly a pent-up demand for cruising on Carnival,” Christine Duffy, president of Carnival Cruise Line, said in a Jan. 7 statement.

I don’t think there’s any question that once it’s safe to travel on a cruise ship, millions of Americans will do so.

If it can squeeze out two quarters of typical business — the first quarter of December, January, and February is already a write-off — there’s a possibility it could deliver 2004-like numbers in the second half of 2021.

At this point, the risk for buyers is if the vaccinations in the U.S. continue to lag projected timelines. That will obviously push back Carnival’s ability to safely operate cruises that turn, will generate further operating losses.

If you’re an aggressive investor, I would try to buy under $20. If you’re using this money for your kid’s education fund, I’d probably wait a few months to see where things are at that point.

Once life resumes to normal, I could see CCL stock re-testing its all-time high in no time.

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

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.