The FTSE 100 leisure travel company Carnival (LSE: CCL) is the biggest gainer in today’s trading as I write. Its share price is up almost 10% today from yesterday’s close. But this is nothing compared to the huge increase it has seen since the market crash.
Carnival share price rally
The Carnival share price started rising soon after the stock market crash of March, but the back and forth on the Covid-19 situation through the year left it uncertain in the months between June and November. From November it got a second push forward as the stock market rally started. It has stayed at relatively elevated levels since.
But I think it is worth noting that the Carnival share price is still way below its pre-pandemic levels.
In fact, it is at less than half the share price seen at the start of 2020. Before buying the stock I would ask if it can go back to those levels in the foreseeable future. Because if it can, CCL would make a great addition to my portfolio.
The good news for CCL
There is definitely some good news for the share. The big one of course is that the end of the pandemic is in sight.
While the end to the lockdown is a most recent positive development in this regard in the UK, CCL is a multinational company. This means that while eased travel conditions in the UK could make some difference to it, it is the global situation that is more relevant.
North America is its biggest revenue generator, bringing in more than half its total. Europe comes next, with a share of less than one third.
So, when assessing the Carnival share price’s prospects, I am looking more towards the US market than the UK. The good news is that the US is expected to come back with a bang in 2021. This can be positive for travel-related companies, which are likely to see a sharp growth in demand, as easyJet recently pointed out.
The downside
But I think there are reasons to be cautious too.
CCL’s financials are in a mess after 2020, when it has had to raise funds to meet its fixed costs. In fact, it is still doing so in 2021.
Moreover, even if it resumes operations this year, it will take some time to undo last year’s damage. And even when operations are removed, it remains to be seen to what extent demand will sustainably come back.
If the economic recovery is not all that it is chalked up to be now, discretionary spends like those on cruises could be limited.
The takeaway
As a long-term investor, I doubt if at the current Carnival share price there is any hurry to buy. I would much rather wait for it to sort out its current challenges and then buy the stock if it still looks attractive.
