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

Cruises from England are set to resume next month. Is this enough to attract Paul Summers back to Carnival (LON:CCL) shares?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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?

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.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Investing Articles

Burberry shares: undervalued FTSE gems that are ready to rocket?

Burberry shares soared at the beginning of the week as the takeover rumour mill went into overdrive. Is Paul Summers…

Read more »

US Stock

Here are the latest share price forecasts for S&P 500 giant Amazon

Amazon has generated monster gains for investors over the last decade. And Wall Street analysts believe the S&P 500 stock…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

2 high-yield FTSE 250 shares I’d buy today — and 1 that I’d avoid

UK markets have felt some volatility after last week’s Budget and the FTSE 250 was no stranger to it. Our…

Read more »

Investing Articles

3 reasons the Rolls-Royce share price could soar over the next decade

Sustainable aviation fuel, narrow-body aircraft, and small nuclear reactors could all keep the Rolls-Royce share price climbing over the next…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Here’s how much income I’d get if I invested my entire £20k ISA in cheap BT shares

BT shares are on the up but still cheap, while the FTSE 100 telecoms stock offers a good yield too.…

Read more »

Investing Articles

2 FTSE dividend shares yielding more than 6% with P/Es of less than 9!

Harvey Jones picks out two brilliant FTSE 100 dividend shares that yield more than 6% but are selling at strangely…

Read more »

Investing Articles

Up 105% in a year! Is this rocketing FTSE bank the perfect pick for my Stocks and Shares ISA?

Harvey Jones is drawing up a shortlist of stocks to purchase inside his Stocks and Shares ISA allowance. This FTSE…

Read more »

Investing Articles

Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock's massive recent decline.

Read more »