With Shares Down Nearly 80%, Is Now the Time to Buy This Cruise Line Stock?

Carnival Corp. (NYSE: CCL) is back from a consumer standpoint. Bookings are at all-time highs, and with most space on its cruises booked far in advance, the company continues to add to its fleet.

Nonetheless, the stock has pulled back nearly one-third from recent highs and around 80% from its all-time high. At least part of the blame probably lies with Carnival's massive debt hangover for the year-long pandemic-related shutdown. Does that mean investors should take advantage of the sales price of this cruise line stock ?

The state of Carnival

In most respects, Carnival has put the pandemic in the rearview mirror. The industry defines 100% occupancy as when two or more people occupy a cabin, and Carnival reached 104% capacity in the second quarter of fiscal 2024 (ended May 31). A percentage above 100% indicates some cabins had more than two passengers.

Bookings are also at record volumes as cabin space for 2025 sailings fills up. Amid its growing popularity, Carnival plans to increase capacity by 5% in fiscal 2024.

Moreover, the pandemic did not affect its lead in the market. According to Cruise Market Watch, Carnival-owned cruise lines claim around 43% of the industry's passenger count. This is far ahead of Royal Caribbean Cruises at 26% and Norwegian Cruise Line Holdings at 9%.

However, this has not translated into gains for Carnival stock. Since exceeding $72 per share in early 2018, Carnival shares now trade at an 80% discount to that high.

CCL data by YCharts

Much of that drop occurred right before the pandemic and in the early stages of COVID-19, but the stock price struggles will likely continue because of the difficulty in escaping one aspect of the pandemic's legacy: debt levels.

Amid a shutdown that lasted almost 15 months in 2020 and 2021, revenue fell by more than 99%. To make up for the shortfall, Carnival turned to debt. And its total debt, which was $11.5 billion at the end of fiscal 2019, ballooned to nearly $36 billion at the end of fiscal 2022 (ended Nov. 30, 2022).

Carnival has since reduced that to around $30 billion. Nonetheless, with its shareholders' equity at just $6.8 billion, it remains a tremendous burden.

Improving financials

The company's financials reflect that burden. The $11 billion in revenue for the first half of the fiscal year was up 20% from year-ago levels, but the company lost $123 million during that period despite that improvement, a loss caused by its $921 million in interest expenses on its considerable debt obligations.

Still, the financials point to tremendous improvements in other respects. Despite the loss over two quarters, net income was $92 million in Q2. Carnival also generated $2.7 billion in free cash flow in the first half of the year.

That's enough to pay off the current $2.2 billion portion of the long-term debt. It also allows Carnival to retire debt without having to refinance massive amounts of debt at higher interest rates . As long as its free cash flows allow it to retire debt as it comes due and add capacity, Carnival can right its financial ship, and the stock should eventually return to growth.

Additionally, investors may want to consider buying while the stock is inexpensive. As conditions stand now, its P/E ratio is 23. Also, its expected future earnings take its forward P/E ratio to just 12, a near-term low for the stock. Such levels increase the likelihood that the stock will rise over the next year.

Consider Carnival stock

Carnival stock appears poised for a comeback and is well-positioned to benefit investors. Occupancy levels have come back from the pandemic shutdown fully, and the company has benefited from rising advanced bookings and is adding capacity at a time when the stock trades at a low valuation.

Admittedly, investors need to ensure occupancy levels stay near or above 100% and confirm that it is continuing to retire debt. Still, as long as passenger bookings climb and debt falls, the cruise line should sail in smoother waters.

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