Carnival stock has surged, but is CCL still a good buy?

Carnival Corporation’s (NYSE: CCL) shareholders have seen substantial gains, with the stock price rising over 52% in the last year, significantly outperforming the S&P 500’s 22% increase.

This surge might make potential investors wonder if they’ve missed the boat on Carnival’s shares, or if the company’s recovery trajectory suggests further growth ahead.

The pandemic’s impact and CCL’s subsequent rebound

The cruise industry was hit hard by the pandemic, with restrictions and health concerns causing a steep decline in travel.

Carnival’s revenue plummeted by 73% to $5.6 billion in fiscal 2020, resulting in a loss of $10.2 billion, compared to a profit of $3 billion the previous year.

However, as travel restrictions eased and consumer confidence returned, Carnival experienced a robust rebound.

For the quarter ending February 29, the company reported an occupancy rate of 102% and increased ticket prices, driving revenue up 22% year-over-year to $5.4 billion.

Source: TradingView

Current outlook and future uncertainties

Carnival’s management is optimistic, citing record-high bookings and improved pricing and occupancy rates for the upcoming year.

However, the broader economic context presents uncertainties.

Slowing GDP growth and ongoing high interest rates raise concerns about a potential recession, which could impact discretionary spending on travel and leisure activities such as cruises.

Valuation and investment considerations

Despite the strong recovery in Carnival’s stock price, its price-to-sales ratio remains at 0.8, consistent with levels from a year ago and reasonable compared to its 10-year history.

This suggests that the stock may still be valued fairly despite recent gains.

However, the cyclicality of the travel and leisure sector, combined with macroeconomic risks, advises caution.

Investors are encouraged to monitor the economic indicators and Carnival’s performance closely.

Long-term investors might find Carnival an attractive option if the stock’s valuation becomes even more favourable and the economic outlook stabilizes.

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