With shares of Carnival (NYSE:CCL) trading close to their 52-week high, you might assume everything is rosy in the cruise ship sector. But don’t let the seemingly bullish price action of CCL stock lull you into complacency.
I totally understand why some folks would consider CCL stock the ultimate Covid-19 pandemic recovery investment. Vaccines are quickly being distributed, and that’s bullish for the cruise industry in general.
Today, I’ll review some of the recent developments concerning Carnival and the U.S. Centers for Disease Control and Prevention (CDC) and other regulators. In the final analysis, you might decide that the price on CCL stock doesn’t necessarily reflect the potential for choppy seas in coming months.
A Closer Look at CCL Stock
Let’s rewind the clock to a panicky time in the markets. On April 2, 2020, CCL stock bottomed out at around $8.
Back then, we had no idea how long or how bad the Covid-19 pandemic could be. And the notion of vaccines was far from most people’s minds. Nevertheless, the stock market quickly began to price in the assumption of a swift recovery.
It’s well-documented that financial markets tend to be forward-looking, but in the case of CCL stock, traders took this habit to an extreme.
By June 8, 2020, the Carnival share price had already advanced to the $25 level. Fast-forward to the morning of May 18, 2021, and the stock was trading at $28 and change.
Meanwhile, Carnival has trailing 12-month earnings per share of -$13.02. That’s not good, especially for a $28 stock.
The bulls will definitely want to see that per-share earnings figure turn positive in the near future. Until that happens, it will be difficult to justify owning a stake in CCL stock.
Why So High?
Given the deeply negative EPS I just mentioned, it’s hard to fathom why Carnival shares are trading so high on a short-term basis.
It’s not just because the markets are forward-looking. There are also some news items involved here.
A Canadian cruise ban means that cruise ships are not allowed to dock at Canadian ports. Yet long-standing U.S. regulations require a foreign stop when traveling across foreign waters; however, the U.S. Senate recently passed legislation that would temporarily erase that requirement.
This gave people looking forward to an Alaskan cruise — and, I suppose, CCL stockholders — something to cheer about.
But what about the rest of the country? The Canada/Alaska announcement was issued at around the same time that the CDC hinted that cruise ships may be able to set sail in the U.S. again as early as mid-summer.
A Time for Caution
The cruise industry may have scored a minor victory in Alaska, but let’s not get ahead of ourselves in assuming that the entire country will reopen soon. We’re fast approaching June and with it the make-or-break summer season for the cruise market.
Some CCL stock traders probably assumed, incorrectly, that the entire U.S. would be opened up to cruise-ship sailing by now.
On May 12, it was reported that Carnival had canceled nearly all of its Carnival Cruise Line voyages through July 30.
Carnival Cruise Line President Christine Duffy admitted, “We continue to have constructive discussions with the CDC but still have many questions that remain unanswered.”
Guests who already booked cruises during this uncertain time will have the option to cancel without paying a penalty by May 31, 2021 and receive a full refund.
That’s going to drag on Carnival’s bottom line. As an investor, it might be better to take a cautionary stance and let events play out before jumping into the trade.
The Bottom Line
On a per-share basis, Carnival’s earnings are deeply negative and that’s no small problem.
As for the cruise industry’s recent victories, investors shouldn’t accentuate the positive developments too much. Otherwise, they may end up ignoring the obstacles that are likely to hamper Carnival’s path to profitability.
On the date of publication, David Moadel 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.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.