What’s going on with the Carnival share price?

The Carnival share price has fallen significantly over the past month. This fool take a closer look at why the stock has been hit.

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It hasn’t been a great time for the Carnival (LSE: CCL) share price recently. The stock is down almost 25% in the past month. But during the last year the shares have increased by more than 30%. So what’s going on?

Well, there are a couple of reasons why the stock price has fallen, which I’ll discuss here. Before I cover this, I have to say that won’t be buying just yet, but it’s on my watchlist .

Why has the Carnival share price been falling?

I think there are two main reasons why the Carnival share price has fallen in the last month. The first one is that its quarterly results announced in June weren’t great. In the three months ended 31 May, it posted a significantly narrower loss, but it still incurred losses as most of its operations remained suspended.

Carnival announced a quarterly operating loss of $1.6bn compared to a loss of $4.2bn during the same period last year. Also, three-month revenue was $50m compared to $740m in 2020. Clearly, the numbers aren’t strong and so the stock has been hit by this news.

I think that reality has also started to set in after its results. The travel recovery isn’t going to happen overnight even if there’s pent-up demand. And so the Carnival share price has been deteriorating over the past month.

I reckon the second reason for the fall is that Covid-19 cases have increased especially in the UK due to the Delta variant. Hospitalisations and deaths have also risen, even if not as fast. This has created uncertainty and on top of that, lockdown restrictions have been eased, adding more fuel to the fire.

The new wave of coronavirus cases has caused some uneasiness, which in turn has impacted stocks like Carnival. And it could mean that the travel recovery may be pushed back, possibly putting further pressure on the company. 

So should I buy now?

In short, I’m not a buyer of the stock just yet. While some things may be improving for the firm, I believe the recovery is going to be a long one. The rising Covid-19 case rates are making me uncomfortable and any negative news is likely to hit the shares.

But things aren’t all doom and gloom. Carnival has a good liquidity position. As at the end of May, it had $9.3bn of cash and short-term investments, which it expects will last for at least the next 12 months. So even if conditions worsen, there’s enough liquidity for the next year before it needs more money.

While this is positive, it’s only a temporary fix. Ultimately, it needs to boost its revenue. And I’m unsure when this is going to happen. The increase in Covid-19 cases hasn’t helped and has just muddied the waters.

The company expects to have its full fleet of cruise ships back in operation in spring 2022. But between now and then, there’s the winter. And coronavirus has a natural advantage to spread further in the colder months.

I think Carnival can survive the pandemic, but it’s too soon to dip my toe in given the large number of unknowns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Nadia Yaqub has no position in any of the share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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