Investors who bought Carnival (LSE: CCL) shares when they were almost sunk by the pandemic are finally being rewarded for taking what was a big chance. The cruise company’s stock is on the up after it posted record-breaking Q2 revenues of $4.9bn. However, it’s still losing money and has a long journey ahead of it.
Carnival’s shares crashed from 3,651p at the start of 2020 to a low of just 620p during the first Covid lockdown that March, a drop of almost 85% in less than four months. Today, they’re up 40.69% over the last year, with the bulk of that gain made in recent weeks.
The FTSE 250 group’s shares were boosted by a positive first quarter, when it reported a net loss of ‘just’ $693m in March. That was better than its December guidance of a $750m to $850m loss. Investors were thrilled to see that it enjoyed the highest quarterly booking volumes in its history, with deposits hitting $5.7bn.
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Cash from operations turned positive in the period, which is vital if Carnival is to start shrinking its huge and worrying $30bn debt pile.
Gathering steam
Hopes were high for Monday’s Q2 figures and they showed a smaller net loss of $407m, with EBITDA earnings in line with the March guidance range of $600m to $700m. Total customers hit another all-time high of $7.2bn, beating the previous record of $6bn set in May 2019.
With $7.3bn liquidity and more than $1bn in variable-rate debt paid down, chief executive officer Josh Weinstein was able to talk about reaching “a meaningful inflection point”.
I never had the courage to buy Carnival after its Covid crash, but if I’d invested £5,000 six months ago, I’d be a happy man today. The stock is up 84.51% since then to trade at 1,131p, and my stake would be worth £9,226. I’d be sitting on a short-term profit of £4,226.
This demonstrates the benefit of buying stocks when they have taken a beating, but it’s never easy to time these things. So much for recent history. Would I buy Carnival today?
Still not plain sailing
The future looks a lot brighter for the cruise sector. Despite the cost-of-living crisis, Carnival’s record bookings show that plenty of people still have money to spend. It’s the people who probably couldn’t afford a cruise in the first place who are suffering most.
Covid is behind us and while we can never rule out another pandemic, investors can’t spend their lives expecting one. The company’s shift towards larger, newer, and more efficient ships should boost margins as passenger numbers recover.
Yet Q2 results disappointed many, who expected a faster pace of recovery. That huge debt pile worries me. It doesn’t leave management with much room to manoeuvre, as investors will want to see it fall sooner rather than later. That won’t be easy, as the company spends more on management incentives and advertising, while sticky inflation keeps costs high.
I feel like I’ve missed out on the early turbo-charged recovery phase, and as a result I won’t be buying Carnival shares today. It is heading in the right direction but there are too many other stocks I’d rather buy than take a punt on this one.
