There are times that will stick with investors forever, and the coronavirus impact in 2020 is one of those moments. It has dealt a crushing blow to Carnival Cruise (NYSE:CCL), Royal Caribbean (NYSE:RCL) and other cruise-line operators. Despite CCL stock rallying 26.5% from its lows this week, shares are still down 80% from its 2020 highs.
From its all-time highs, shares are down about 85%, despite the latest bounce.
Pure destruction. That’s all one can say when taking a look at the chart. Of course, where some see destruction, others see opportunity. Is there opportunity in Carnival Cruise? Likely.
However, can we be sure that the stock has fully baked in all of the risks. A freezing of free cash flow, halted operations and how business will be impacted in the future are all things to consider. Additionally, can Carnival’s balance sheet handle all of this stress?
There’s a reason a stock falls 80% in a matter of days, and it’s not good.
Too Early to Tell
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There are many readers doing their research on this group, looking for someone to say CCL stock and its peers are now a buy. Of all the stocks in the world, these are some of the hardest to tackle.
From peak to trough, the S&P 500 has declined more than 32% so far. The Dow Jones Industrial Average is down even more. These are massive moves to occur in just a few weeks of trading. And the worst part is, it’s still likely that we have not seen the bottom. But amid that carnage, we’ve seen a number of high-quality companies go on sale.
The bargains may get better in the weeks to come, but as it stands, many of these stocks are 30% to 40% or more off the highs.
Further, these are quality growth companies or companies with no balance sheet issues, and stocks that pay healthy dividends that are still covered by free-cash flow.
These are stocks like Nvidia (NASDAQ:NVDA), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Verizon (NYSE:VZ). Where does CCL stock fit in all of this?
Well, its dividend yield has swelled to 20%, making it unsustainable in the current environment. The industry — including Carnival, Royal Caribbean and Norwegian Cruise Line (NYSE:NCLH) — have halted operations. At this point, not only is that the smart and safe thing to do, but it will also help preserve capital. Because who in their right mind is going for a cruise right now, only to risk being stranded at sea with an onboard breakout of Covid-19?
However, that halting will deal a swift blow to revenue, EBITDA and cash flow. So will the customer refund requests.
Where to From Here for CCL Stock?
After such a brutal selloff, investors are clearly looking for opportunity. There may well be opportunity in CCL stock, but there is simply too much noise surrounding this stock.
How does a company support itself with no revenue coming in? We are talking about a company that, as of its latest filing, had $518 million in cash, current assets of $2.05 billion and current liabilities of $9.1 billion. And that was in November!
The obvious concern here is that, without an influx of cash, the company will not be able to meet its short-term obligations. The industry is hoping for some kind of relief aid from the government, and the latter seems open to giving it.
While that’s potentially great news, it’s hard to get overly enthusiastic about a company needing emergency financial aid from the federal government. Just look at how Ford (NYSE:F) and General Motors (NYSE:GM) have done over the last decade. That industry has never really recovered from the financial crisis, at least from a stock perspective.
I’m sure people will go on cruises again, although as for when, I’m not sure. All I know is Carnival’s operations are halted and its stock still has risk until that changes. I’d rather miss some upside, but wait until there is more certainty in the situation.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
