Can Buying Carnival Stocks Today Set You Up for Life?

Carnival (CCL 3.92%) (CUK 4.47%) he came back Since the start of 2023, the stock has skyrocketed 115% (as of October 1). This win is way ahead S&P 500 the index growth in the same period.

But this top cruise line stock still has a lot to do. It’s currently trading 75% below its all-time high since January 2018. Does that mean buying Carnival stock today could set you up for life? Here’s what investors should know.

The strong momentum of the carnival

Carnival recently reported its financial results for the third fiscal quarter 2024 (ended August 31). The business beat Wall Street estimates on both the top and bottom lines for the three-month period, which is certainly an encouraging sign for shareholders.

Carnival posted $7.9 billion in revenue during the period, up 15 percent year-over-year. This set a record for the business. The company also recorded record customer deposits. And there was “strong booking momentum” in 2025 with strong pricing.

Operating income of $2.2 billion was also a record. This propelled diluted earnings per share to rise 59% to total $1.26 in Q3.

The latest financial results continue a string of strong financial results for this business, particularly after the COVID-19 pandemic. In 2020, the company was forced to halt operations to help stop the spread of the virus. As you can imagine, this shattered the financial picture. Carnival’s sales fell 91% between fiscal 2019 and fiscal 2021. It had no choice but to secure financing to stay operational. But now, the business is clearly sailing smoothly.

Think about the bigger picture

When you think of stocks that can set you up for life, perhaps the overall goal is to try to own businesses that can generate extraordinary returns over many years and even decades. With this frame of mind, it’s easy to be critical of Carnival.

Over the past 10 years, the stock has produced a negative total return of 54%. An investor’s money would have basically been cut in half over what is an extended time horizon.

During the same period, the S&P 500 generated a total return of 251%. Clearly, Carnival’s record is disappointing. But now that the business is on a better footing, is the investment worth considering?

I still don’t believe it. Shares are traded at a the forward price-earnings ratio of just under 14. It might look appealing, but I think a low rating is fully justified.

To begin with, the financial situation of the Carnival leaves much to be desired. As of Aug. 31, the company still had nearly $29 billion in long-term debt on its balance sheet. To be fair, this balance has steadily declined. But it puts the business in a precarious position with almost no margin for error.

The capital intensive nature of Carnival’s operations is also not a favorable feature. This is proven by the extremely low level of the company return on invested capital (ROIC). Historically, Carnival’s ROIC has averaged a poor 6.2%. This is very discouraging when you realize that the average investment return on the S&P 500 is 10%.

While industry momentum is notable right now, I would argue that demand for cruise travel may be cyclical, even if it has been strong lately. If economic conditions deteriorate for any reason, it’s not hard to believe that business will take a hit.

In my opinion, investors should avoid owning these stocks. I don’t think it’s a high quality deal. Therefore, I don’t think it has the potential to produce market-beating returns over the long term. So its stock is not likely to set you up for life.