The Carnival share price is recovering. Should I buy now?

The Carnival share price is rising this week as the firm starts ramping back up. Zaven Boyrazian investigates the stock’s recovery prospects.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

It’s been a relatively good week for the Carnival (LSE:CCL) share price. While the stock is still firmly below pre-pandemic levels, it did manage to rise by almost 10% since Monday, bringing its 12-month performance to a solid 50% return. So, what’s behind this recent boost? And is it time to consider adding this business to my portfolio?

The rising Carnival share price

It’s no secret that the travel industry was decimated by Covid-19 last year. And while the sector has a long way to go before returning to pre-pandemic levels, the lifting of travel restrictions has initiated a recovery. This is fantastic news for Carnival. The firm suspended all its cruise operations to protect the safety of its passengers in 2020. And it almost went bankrupt as a result.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

It seems the worst has finally passed as cruise ships are setting sail again. In July, the management team estimated that passenger capacity will rise up to 75% before the end of 2021. This week, more positive news for shareholders came out. Several of Carnival’s brands, including Holland America, Princess Cruises, and Seabourn cruise lines, are scheduled to return to operations as early as spring next year. In other words, the business might be returning to its pre-pandemic capacity levels within the next six months.

Needless to say, this is quite encouraging progress. And if the company can stick to this timeline, I wouldn’t be surprised to see the Carnival share price continue its current upward trajectory.

Taking a step back

As promising as the return to operations is, Carnival’s share price recovery may take longer than some might expect. Even if passenger capacity returns to 2019 levels, the firm still has a less than healthy balance sheet to contend with. Maintaining cruise ships is expensive, even when they are parked in the harbour. And with no meaningful revenue being generated for most of last year, management was forced to take out new loans to keep the business afloat.

Total debt now stands at just under $31bn, up from $11bn in 2019. That’s a lot of leverage. And with a substantial rise in loan obligations comes an equally substantial increase in interest expenses. At the end of November last year, the total interest charged on debts alone came in at $907m. When accounting for the firm’s lease obligations, the bill increases to around $2.65bn.

The good news is that if Carnival can return to pre-pandemic levels of profitability, it should have sufficient cash flow to cover the additional expense. However, margins are undoubtedly going to be squeezed until the debt level can be brought back down. Therefore, I think it’s unlikely to see the return of any sizable dividends for quite some time.

The Carnival share price has its risks

The bottom line

A long-term path to a full recovery seems to have emerged for this business. And I’m significantly more optimistic about Carnival’s share price today than a few months ago. But personally, I’m convinced there are far better investment opportunities to be found elsewhere. Therefore, I won’t be adding Carnival to my portfolio today.

Instead, I'm far more interested in...

One FTSE “Snowball Stock” With Runaway Revenues

Looking for new share ideas?

Grab this FREE report now.

Inside, you discover one FTSE company with a runaway snowball of profits.

From 2015-2019…

  • Revenues increased 38.6%.
  • Its net income went up 19.7 times!
  • Since 2012, revenues from regular users have almost DOUBLED

The opportunity here really is astounding.

In fact, one of its own board members recently snapped up 25,000 shares using their own money...

So why sit on the side lines a minute longer?

You could have the full details on this company right now.

Grab your free report – while it’s online.

Zaven Boyrazian has no position in any of the shares 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.

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.

More on Investing Articles

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

Why a bear market is an investor’s best friend

A bear market can certainly be scary. But any investor tempted to sell might benefit by looking at Warren Buffett's…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The Rolls-Royce share price could be stuck below £1 for a while. Should I buy?

The Rolls-Royce share price has been trading at penny stock levels since April. Could the stock be a bargain at…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m aiming to make £45,000 in passive income with UK shares and never work again!

Investing regularly in UK shares can generate a substantial passive income over the long run. Zaven Boyrazian demonstrates how.

Read more »