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Carnival shares: can this news tempt me back on board this FTSE 100 stock?

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News that international cruises from England will be allowed to restart from early next month should provide some uplift for Carnival (LSE: CCL) shares, at least in theory.

Having been a holder of the stock at the beginning of the pandemic (and suffered), is it now time for me to take a fresh look at FTSE 100 company?

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Carnival shares: what’s the draw?

While I did decide to jettison my holding last year, I do still think there’s a lot to like about Carnival. 

For one, it’s the clear market leader at what it does (at least, when its liners are actually permitted to move). The owner and operator of more than 100 ships, Carnival’s portfolio includes brands such as Princess Cruises, Cunard, and P&O.

In the good ol’ pre-pandemic days, it was a hugely profitable business, helped by the fact that guests couldn’t escape when at sea. Over lengthy trips, that can really boost margins.

The long-term (and I really mean long-term) outlook for the industry also looks to be positive. As things stand, US travellers are by far the most frequent cruisers. That could change over the next few decades as demand from other parts of the world grows. Asian markets could prove particularly lucrative for companies like Carnival due to growing levels of affluence among the middle class. As well as serving far-more-active retirees, there’s also a possibility that taking a cruise may become increasingly popular with younger customers.

Once bitten…

Despite all this, I still think there are many issues with the investment case for Carnival.

The balance sheet is under massive pressure. In fact, the amount of net debt is now higher than the company’s entire market capitalisation! This is no real surprise, of course. Huge cruise-liners cost bucketloads of cash to maintain whether they’re permitted to move or not. I was prepared to overlook this when I picked up the stock a few years ago. That worked out well… 

Having made it this far, I’m confident management be able to steady the ship through financial jugglery until trading bounces back. Unfortunately, any hope of dividends looks dead in the water. As someone who originally bought Carnival shares primarily for income, that’s a problem for me.

And this is the rosy scenario. Yes, infection rates are going in the right direction, at least as far as the UK is concerned. However, vaccination programmes are clearly progressing at different rates around the globe. This could halt some Carnival cruises for a while as well as causing potential customers to think twice before booking. Pent-up demand is one thing but I can’t be the only one that remembers the ‘floating petri-dish’ headlines of 2020

A safer option?

Buying Carnival shares now may prove to be a bargain in a few years. However, my sea legs aren’t yet strong enough to deal with the potential for ongoing volatility. Yes, the shares are up a very healthy 65% in the last year. However, performance over the last month hasn’t been quite so stellar.

This makes me wonder if quite a bit of the recovery has now been priced in and whether the shares could drift for a while. 

All told, I feel far safer playing the rebound in travel via this UK growth stock.  

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Paul Summers 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.

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