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Is the Carnival share price a FTSE 100 bargain or value trap?

The coronavirus crisis has presented some unprecedented challenges for cruise ship operators. Almost all of these firms have been forced to suspend operations. Following the company’s decision to suspend services across the business until the beginning of August at the earliest, the Carnival (LSE: CCL) share price has plunged this year. Shares in the group are off 73% year-to-date.

However, following this decline, the stock looks cheap, compared to history. As such, the Carnival share price seems to appear attractive as a value investment at current levels.

Carnival share price on offer?

When the coronavirus crisis started, Carnival looked as if it would avoid the worst of the outbreak. The company continued to cruise and take new bookings. But it quickly became apparent that the group would be more affected than most.

Coronavirus outbreaks on some of its cruise vessels claimed the lives of customers, and it was forced to suspend operations as a result. The Carnival share price plunged on this news. 

Management has acted quickly to try and stem the bleed. The group raised billions of dollars from investors to keep the lights on and tried to renegotiate bookings with customers. The cruise operator has also recently started to cut jobs.

These efforts have had a positive impact on the Carnival share price. It’s up nearly 80% from the one year low. Nevertheless, the company isn’t out of the woods just yet. It’s burning through $1bn a month in cash. Figures suggest it has less than one year of money left at this rate of cash burn.

Still, there are some positive signs on the horizon. Carnival is planning to restart cruises again at the beginning of August, in some regions. This should help bring in some much-needed cash flow. In addition, reports suggest customers have been happy to rebook with the group.

Bookings reportedly increased 600% when Carnival announced the resumption of operations. These numbers suggest that while the Carnival share price faces an uncertain short-term outlook, if the company can weather the storm, it could emerge from the crisis in one piece.

Diversification 

Of course, there’s no guarantee the Carnival share price rise from current levels. But the fact that the company has such a strong customer following is a positive. Customer demand also implies the stock may not be a value trap. The Carnival share price is under pressure due to one-off the factors. But demand for the company’s product is still high.

As such, when the coronavirus crisis is over, Carnival may make a strong recovery.

That said, this isn’t an investment for the faint-hearted. Carnival might have a strong customer base, but if it runs out of cash, it won’t be able to make the most of this following.

As such, while the Carnival share price does look attractive at recent levels, it might be best for investors to own the stock as part of a well-diversified portfolio of FTSE 100 investments.

A diverse portfolio of FTSE 100 stocks may be the best way to benefit from any potential upside while minimising risk.

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Rupert Hargreaves owns shares in Carnival. The Motley Fool UK has recommended Carnival. 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.