Although pandemic-related limitations have been lifted, Carnival Corporation stock (NYSE:CCL) continues to trade at a significant discount to its former highs.
Investors should think carefully before purchasing Carnival stock (NYSE:CCL) as the firm contends with debt and cuts.
How did Carnival’s saga begin?
Beginning in 2020, major COVID-19 outbreaks occurred on cruise liners. In March of that year, health organizations such as the Centers for Disease Control and Prevention issued no-sail orders to the industry. Carnival sold 19 ships, accessed financial markets, and used share dilution to generate the funds it needed to weather the crisis, with yearly revenue decreasing to as low as $1.9 billion in 2021 (from $20.8 billion in 2019).
Carnival made a combined net loss of $19.7 billion in 2020 and 2021, increased its long-term debt from $9.7 billion to $28.5 billion, and increased its share outstanding from 690 million to 1.12 billion (a 62% increase). Even when operations stabilize, the corporation will struggle to handle this baggage.
Carnival Stock: The Third-quarter Profits Were Underwhelming.
The third-quarter results of Carnival were a mixed bag. Revenue increased by 688% yearly to $4.3 billion due to simple comparisons to the prior year. The corporation also reduced its operating deficit from $2 billion to $279 million and recorded nearly $300 million in positive adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). However, given Carnival’s poor financial sheet, the results are unlikely to alter the needle.
While Carnival’s $28.5 billion in long-term debt would be a source of concern for any underperforming firm, the interest burden that comes with it is a major one. In the third quarter, this outflow totaled $422 million, which will have a long-term impact on Carnival stock (NYSE:CCL), cash flow, and profitability. But it does not stop there.
According to management, as of September 30, Carnival was employing around 95% of its capacity to serve visitors. In addition, the business anticipates that eight of its nine brands will have used up their entire fleet by the fourth quarter. While this demonstrates significant customer interest in cruising, it also signals that Carnival stock (NYSE:CCL)may have reached the top limit of its development potential and may need to acquire more ships to expand further. This would put even greater on its already stressed financial flow.
There’s a reason why Carnival Stock is cheap.
Carnival stock (NYSE:CCL) is trading for around $7 per share, a long cry from its all-time high of $66 in 2018. However, the low price does not make carnival stock (NYSE:CCL) a desirable buy. While the troubled company’s sales may ultimately recover to pre-crisis levels, profitability and cash flow will remain elusive due to its massive debt burden and interest expenditure. Investors should avoid the stock until these issues are remedied.
Featured Image – Unsplash © alonsoreyes