3 Reasons to Buy Carnival Stock Like There's No Tomorrow

If you're hesitant to board shares of Carnival Corp. (NYSE: CCL) these days, you're not alone. The world's largest cruise line continues to trade marginally lower than it was at the start of the year despite a long list of bullish developments. Is this a pleasure cruise or a ship that's taking on water?

Since you made it past the headline, you know where I stand. I think this is a great time to consider an investment in the industry giant operating 87 cruise ships across nine different brands worldwide. The waters might seem choppy, but there could be an opportunity between the crashing waves. Let's dive in.

1. Demand has never been stronger

You might not be a fan of watery adventures on the open seas. You're a landlubber, and there's certainly a lot of the world to explore without ever having to set foot on a cruise ship. However, for a growing number of people, the promise of exotic ports of call where you can wake up in a new destination without having to pack or worry about travel arrangements is pretty alluring. The industry has also evolved over generations to offer a wide breadth of culinary and entertainment offerings to make sure passengers of all ages are having a good time.

The pandemic was disruptive, of course. Being on a cruise ship in February or March of 2020 was a scary place to be, so the industry had to suspend operations for more than a year before vessels were allowed to take on passengers again. However, it didn't take long for the cruise lines to exceed their pre-pandemic peaks. The appetite is real and quantifiable. Total customer deposits at Carnival for future sailings are at an all-time high of $8.3 billion.

Image source: Getty Images.

2. The beats keep coming

It's been three weeks since Carnival posted another period of blowout financial results . Revenue rose 18% to $5.78 billion in the fiscal second quarter, covering the three months ending in May. Wall Street pros were holding out for just a 16% top-line advance. The bottom line is where things really get interesting.

Analysts were holding out for a small loss for the springtime quarter. Carnival came through with a profit of $0.07 a share on a reported basis or $0.11 a share on an adjusted basis. This is big news for a seasonal business, but no one should be surprised by the surprise. Carnival has been blowing through Wall Street profit targets since resuming normal operations almost two years ago.

Data source: Yahoo! Finance. EPS = earnings per share.

Take a look at the last column. The degree of the beats has accelerated in five of the last six quarters. The gap between Wall Street earnings expectations and Carnival's reality is widening for the better, and that usually works out pretty well for investors.

3. Land ho and valuation low

Carnival has lost a lot of money as a result of the pandemic. Its surprising profitable turn last month was only the second time in the last 18 quarters that Carnival has not been in the red. The tide is turning.

Carnival boosted its guidance as it announced its fiscal second-quarter results in late June. It now sees a profit of $1.18 a share for all of 2024. It's not alone. Its two smaller publicly traded rivals also jacked up their full-year projections the last time they climbed up to the crow's nest. Forget that analysts were modeling a 2024 profit of only $1.01 a share or that Carnival's momentum likely means it will exceed its own forecast.

The same Carnival that, during the darkest stretches of the COVID-19 crisis, some figured would never turn a profit is trading for just 16 times this year's earnings guidance. The multiple drops to less than 12 if we look at what analysts now see for the cruise line stock leader's earnings next year.

Sure, the multiple is higher on an enterprise value basis. However, Carnival's doing a good job of cleaning up its balance sheet now that it's making money again. It has bought back $6.6 billion of its debt in the last five quarters. You can expect debt repayments and stock buybacks to continue and, eventually, a return to paying out quarterly dividends.

Carnival is back. Getting it essentially for what it was trading for at the start of this year when so many questions remained unanswered is like having a cruise ship's midnight buffet all to yourself. Bon voyage and bon appetit.

Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy .