Out of the entire FTSE 250, the best performing stock in June was Carnival (LSE:CCL). The share price jumped 66% in the month, to finish at 1,300p. After the pandemic almost sent the company bust due to mounting debts and large losses, the action of the past month will certainly have boosted morale for long-term shareholders.
Results have a silver lining
The Q2 results were released in June, which logically coincided with H1 results. The bottom line was that even though the business is still loss-generating, it’s starting to shrink in size.
For example, the H1 net loss was $563m. Although this isn’t great, it’s certainly a step forward from the H1 2022 loss of $1.28bn.
What helped the company during Q2 (and H1) was stronger customer demand. Appetite for cruise holidays has picked up, with passenger revenue jumping to $2.49bn. This is a large move up from $835m from H1 2022.
Interestingly, the share price did fall when the results were released. However, once it had been fully digested, the stock did recover and make new highs in the following days.
The future looks brighter
Another broader factor that spilled over from the results was the optimism towards what lies ahead.
Regarding the revenue increase, the business noted that it “saw continued acceleration of demand, with total bookings made during the quarter reaching a new all-time high for all future sailings”.
Another reason for positivity ahead is that the good cash flow position should allow further deleveraging and reducing debt levels over the next six months and beyond. Not only does this bring down the overall debt pile, but it lowers the interest expenses from the existing debt.
If you put together higher revenue and lower debt costs, it should help Carnival post a bottom line profit at some point in the not too distant future.
Is it a buy for me?
The 66% rally is impressive, but it should be taken in context of the longer-term performance. Over the past year the share price is up 109%. Yet if we rewind to just before the pandemic started, the stock was above 3,000p. So it’s still down 50% from pre-pandemic levels.
The big question for new investors from here is just how long can this rally continue? The company is still saddled with $6.6bn in long-term debt. It’s also having to deal with a squeeze on disposable incomes for target clients. Pent-up demand from the pandemic has helped to drive revenue thus far, but how long can that continue to support the firm?
I feel this is an incredibly subjective call to make. The strong June was built on results showing that the future is bright. For those who believe in this, the run could continue in July onwards. Yet is a cruise line operator that still bears the scars of the pandemic really the best place to invest my money right now? I’m not convinced.
