Early in the pandemic, there was a certain logic to buying shares of Carnival (NYSE:CCL). If you had a tolerance for risk and the ability to wait, buying CCL stock at a bargain price was a no-brainer. Today, the stock price is 172% higher and the decision to buy can become an emotional one.
I’d caution you to keep your emotions in check. At this time, CCL stock seems fairly valued. And while I lay out my reasoning below, first it’s time to take a look at where Carnival was before the pandemic.
For all of 2019 Carnival delivered $20.89 billion in revenue. The stock price at the beginning of the year was $50.05. At the end of the year, CCL stock traded for $51.33. That’s not much movement. And if you go back to January 2018, the stock was in a steady decline.
Why? In 2018, Carnival delivered earnings per share (EPS) of $4.26 on revenue of $18.89 billion. For all of 2019, EPS was $4.40 on revenue of $20.89 billion. That tells me that investors and analysts weren’t all that pleased about how the company was going before the pandemic.
And that changes the narrative just a little bit. Cruise line stocks were oversold, with good reason, in 2020. The cruise lines weren’t allowed to sail. It wasn’t that their choice. Investors of all risk tolerances made the wise decision to put their capital to better use.
However, some savvy risk-tolerant investors sensed a buying opportunity. And they made a nice gain if they did. Now the company is reporting strong bookings for 2022 and beyond and some investors are becoming bullish on the stock. Should they be or is it just FOMO, a fear of missing out?
Old Rules Still Apply (Sort Of)
In the days before the pandemic, cruise line stocks were evaluated on things like forward bookings. And that’s what has some investors — and InvestorPlace contributor Mark Hake — bullish about CCL stock. In providing investors with his opinion and research, Hake points out that in Carnival’s fiscal 2022 (November), the company expects to earn $17.32 billion in revenue. And when you compare that to the $2.56 billion the company is expecting this year, that’s impressive.
Hake gives CCL stock a price target of $32 per share “based on a P/E multiple of 15.9 times 2023 forecast earnings.” Hake’s reasoning is sound if you believe that Carnival will generate the revenue they forecast. But with Carnival’s high debt level it’s unlikely that the company will generate earnings anywhere near the $4.40 it generated in 2019.
However, as we’ve seen throughout this pandemic, few things are predictable. There may still be hurdles related to Covid-19. There could be a loss of revenue due to vaccine mandates. The economy is already showing signs of slowing down.
I’m not rooting for any of these things to happen. But then again if I had my choice we wouldn’t still be dealing with a worldwide pandemic.
Hold Off on CCL Stock Until Revenue Becomes Real
I know that many investors will say that I’m an idiot for not looking at 2022 bookings. I am looking at them. I’m also looking at a calendar that says 2021. After the last 18 months, I don’t see that as pessimistic, I see it as realistic for consideration on CCL stock moves.
In the end, people will go on cruises or they won’t. There’s really not much reason to speculate one way or the other. The best thing investors can do is wait on the data. If the revenue comes in as expected then Carnival stock is a bargain. If not, then CCL stock is overvalued.
Carnival stock has made a nice recovery. It would be unfair for the stock to be trading at its pandemic lows. But that doesn’t mean that it needs to go any higher right now. Let Carnival show you that people are actually cruising.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.