A bit of positive news included in Carnival’s (NYSE:CCL) second-quarter results lifted CCL  stock in late September. But even as the world appears on track to get “back to normal,” you may not want to buy Carnival’s shares at its present levels.

There’s a good chance that the cruise line operator’s results will fully bounce back in less than two years. But that’s not going to be enough to send the stock back to its pre-Covid price levels of around $50 per share.

In fact, based on my calculations, the stock appears to fully price in Carnival exceeding its pre-virus performance in 2023. As a result, the stock is not likely to rise significantly, but it could fall a great deal if the upbeat scenario does not materialize.

In the short-term, investors buying on headlines and hype rather than fundamentals could keep the shares at or above their present levels. They may jump ship, however,  on any news which suggests that “pent up demand” won’t materialize for Carnival. As a result, investors’ best move is to wait until uncertainty pulls down the shares before buying them.

Why the Bulls Are Wrong About CCL Stock

The debate about Carnival among investors focuses mainly on its comeback prospects. Investors who are bullish on the stock expect the firm to benefit from “pent-up demand” thesis. According to that theory,  cruise enthusiasts will book vacations in droves as the vaccine rollout eases worries about contracting the virus. Confident remarks from cruise industry leaders, including Carnival’s CEO, help to bolster this view.

Investors who are bearish on CCL stock focus on the fact  that the pandemic is far from over. Until it’s clear that the virus and its variants  are on their way out, they say, it’s questionable whether Carnival’s 2022 and 2023 results will live up to investors’ expectations

Who’s right and who’s wrong? The bulls are right about the cruise sector’s recovery, but the bears are correct when they say that CCL stock should be avoided.

The problem with the stock isn’t that the Delta variant may wreck Carnival’s comeback in 2022. Instead, the main reason to avoid CCL stock is its current valuation.

Specifically, at today’s prices, the stock is valued as if the upbeat estimates of Carnival’s 2023 results are guaranteed to be met. As a result, the stock is unlikely to climb to $50 per share. And, in light of the bulls’ thesis on the demand for cruises hitting record levels in 2023, the stock’s risk/return ratio does not appear to be favorable.

The Shares Are Fairly Priced

After Carnival predicted that its 2023 EBITDA would exceed its 2019 EBITDA,  its shares may look attractive now. But the net value of its business is less now than it was before the pandemic.

In the fiscal year that ended in November 2019, Carnival generated EBITDA of around $5.5 billion. Trading for approximately $50 per share in early 2020, when around 684 million shares were outstanding ), CCL stock had a market capitalization of about $34.2 billion. Add in $9.6 billion of debt as of the end of 2019 and subtract the company’s $518 million of cash, and  its approximate enterprise value was $43.3 billion. That gave it an enterprise value/EBITDA (EV/EBITDA) ratio of around 7.9 times.

As I mentioned earlier, the company expects its FY23 EBITDA  to exceed its FY19 EBITDA. Let’s  say its FY23 EBITDA comes in at $6 billion, 10% above the FY19 level. If we multiply that by the company’s 2019 EV/EBITDA ratio of 7.9 times, we get an enterprise value of $47.4 billion. After subtracting its most recently disclosed debt, which had ballooned to $25.9 billion and adding its $7.1 billion of cash, we get $28.6 billion.

Divide that by its current share count of 1.13 billion, and you get around $25.30 per share. Basically, that’s where the stock is trading today.

The Bottom Line

The hype surrounding the cruise comeback may help keep Carnival shares at or above its current levels. But it won’t take much to dent investors’ confidence in this popular travel-recovery play. Any suggestion that the Delta variant could continue to spread through the fall and winter may postpone Carnival’s recovery. In turn, that will make it more difficult for its shares to trade at their current “priced for perfection” levels.

Although the cruise line operator looks well-positioned to recover, it’s best to stay away from the shares until they better reflect the uncertainty that the company is facing.

On the date of publication, Thomas Niel 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.

Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.