Are you thinking about taking a gamble on Carnival (NYSE:CCL) and CCL stock? If you are, think again.
New data from John Hopkins University suggests that one out of every 500 Americans has died since the Covid-19 pandemic began in early 2020. For perspective, approximately 49 Americans die each year from lightning strikes. So that’s 1 in 6.8 million people.
So, if you want to tempt fate, maybe you’re better off running in the rain during a lightning storm than getting on a cruise ship with, potentially, no possibility of getting off of it for many days.
The problem with buying CCL stock is that no one has a clue what’s around the corner when it comes to the pandemic. What we do know is that people will continue to die at alarming rates. As of Sept. 14, the U.S. was averaging 1,805 deaths from Covid-19 per day over the previous week. I’m sure many of those deaths are occurring in Florida, where Carnival is based.
That doesn’t make for an attractive sales pitch from the cruise line.
“Come take a wonderful 7-day cruise through the Caribbean. You might get lucky and die. How’s that for an experience you won’t forget?”
This is not the time to cavalierly buy CCL stock. The unknowns facing Carnival are too great, in my opinion, to make the shares’ risk-reward ratio worthwhile for anyone but the most risk-tolerant investors.
Buying CCL stock at the moment is playing Russian Roulette with your hard-earned capital. Here’s why.
CCL Stock and the Unvaccinated
I don’t know who’s dumber at this point, the buyers of CCL stock or those who remain unvaccinated. Both groups are throwing caution to the wind. At least the buyers of Carnival stock aren’t going to die as a result of their hubris.
I hope no one dies of Covid-19, as it’s a horrible way to end one’s life.
In the past, I’ve actually been a big supporter of cruise stocks.
“As I’ve said on several occasions since Covid-19 crippled the travel industry, cruising will come back. Furthermore, as my colleague alluded to with the Silversea Cruises acquisition, CEO Richard Fain is a rockstar in the industry. Bold moves such as buying the remainder of the luxury cruise line are a reminder of why he’s been running the company since 1988.”
“Of the five stocks down more than 50% YTD, RCL is the one I think has the best chance of delivering long term for investors. But you’ll have to be patient.”
While RCL stock was up 53% since my article through Sept. 16, not even Richard Fain can successfully battle Covid-19. That’s also true for Carnival’s CEO, Arnold Donald.
As another InvestorPlace contributor, Josh Enomoto, wrote in early September, “Carnival Stands a Disaster Away From Losing Everything.”
That also true of Royal Caribbean and Norwegian Cruise Line (NYSE:NCLH).
Don’t Forget the Debt
InvestorPlace columnist Dana Blankenhorn recently discussed Carnival’s two “Ds”: Delta variant and debt. In the previous sections, I touched on Covid 19. In this section, I’ll focus on Carnival’s debt.
“Carnival was sitting on about $26 billion of long-term debt at the end of May, exclusive of capitalized leases. During the quarter, it suffered net losses of $2 billion, with $1.35 billion of negative cash flow. The good news was it still had $9.4 billion in cash at the end of the period. It can, in theory, go for another year,” Dana Blankenhorn wrote.
In the chart below, I’ve depicted financial data from all three large cruise line companies.
|Norwegian Cruise Line||$12.3B||$2.8B||$9.5B|
At first, it appears that Norwegian is in the best position of the three because it has the lowest net debt. However, Carnival’s debt is 3.5 times its cash, while the same ratio stands at 4.4 times and five times for Norwegian and Royal Caribbean, respectively.
Now I’m going to add a fifth column to the chart. It ought to change your perspective.
|Company||Debt||Cash||Net Debt||Net Debt/Market Cap|
|Norwegian Cruise Line||$12.3B||$2.8B||$9.5B||102.2%|
None of them has a pristine balance sheet by any means. However, Royal Caribbean has the lowest net debt-market capitalization ratio.
Interestingly, cruise ships are expensive to build; you would think that should provide these companies with a fairly wide moat or barrier to entry. But, according to Morningstar.com, all three are considered to have no moats.
While I disagree withMorningstar.com,, the pandemic has undoubtedly revealed that the cruise lines are Emperors that have no clothes. As Enomoto, the other InvestorPlace columnist, said, companies with large amounts of debt during a pandemic are one disaster away from losing everything.
The only thing saving these companies is that borrowing money is very cheap and so many people want to buy stock and/or bonds . If they faced a similar situation in 1981, Carnival and its peers would have been bankrupt many times over.
With so many stocks available that aren’t nearly as risky, I don’t know why any sane person would buy CCL stock right now.
But then again, I didn’t think that, faced with the statistic that you’re 11 times more likely to die from Covid-19 if unvaccinated, that 25% of American adults wouldn’t get a single dose of any vaccine.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.