Of all the companies in the FTSE 100, one I’d least expect to be registering massive gains since the beginning of 2023 would be a battered cruise operator. But that’s exactly what’s happened to Carnival (LSE: CCL) shares.
Carnival shares are on fire!
At Tuesday’s close, Carnival shares had registered a staggering year-to-date gain of 88%. So if I’d invested £1,000 back in January, my position would now be worth £1,880!
Sure, this doesn’t take into account any costs incurred as a result of buying the stock. Then again, these won’t be all that significant.
Even an investment in Carnival shares one month ago would already be showing a gain of 41%. This is even more remarkable given that the FTSE 100 index is down nearly 3% over the same time period.
Huzzah for stock-picking!
Why the jump?
It would seem that investors have fallen back in love with the travel industry.
But this isn’t just a blind contrarian bet. According to analysts at JPMorgan and Bank of America Global Research, huge pent-up demand for travel has seen bookings recover across the industry.
As a result, it’s not just Carnival shares that have found a fair wind. Peers Norwegian Cruise and Royal Caribbean have also registered fantastic price rises.
The latter has even outperformed the FTSE 100 giant!
More to come?
Now that Covid-19 has truly passed, Carnival shares could continue to recover.
Nevertheless, I’m mindful of a few things. First, there’s no guarantee this demand we’ve seen will stick. Further economic headwinds (such as more interest rate rises than expected) could take away some of the recent gains. Some profit-taking can’t be ruled out either.
Second, Carnival is now dragging a veritable anchor of debt as a result of seeking financial support during the pandemic. Indeed, this may be one reason why the company features fairly high up the list of most shorted stocks on the UK market.
When a significant minority of investors are betting that a share price will fall, others need to tread carefully.
Regardless, the presence of this debt means that, third, dividends are probably off the cards for a while, as they have been since 2020.
That’s not necessarily a killer blow in itself. However, it does mean that investors like me won’t be compensated for their patience if they buy now and, for whatever reason, the share price begins to sink.
Once bitten…
As a one-time holder of the stock and someone who suffered from the Covid-19-related crash, I shiver when looking at Carnival shares these days.
Don’t get me wrong, a massive return like this from scratch would be most welcome. Back in the real world, I’d still be heavily underwater if I’d not sold when I did. Sometimes, moving on is preferable.
I doubt I can be tempted back. Thanks to Carnival, I now stick to buying stock in companies with balance sheets that don’t creak like a wooden pirate ship in a storm.
Management claims the debt pile is now being reduced. But let’s be real. This is no quick fix.
So I congratulate anyone who has ridden the wave of positive momentum over the last six months. But I’m not about to invite Carnival shares back into my portfolio.
