In 2020, the travel industry took a massive hit to its bottom line.
The COVID pandemic shut almost everything down, forcing travel to grind to an abrupt halt.
Cruise Hive estimated that the cruise line industry lost nearly $20 billion in 2020 as hundreds of ships were kept in port for months without any passengers.
Over the last two years, the industry has tried to rebound. But it’s going to take a long time for cruise lines to reach the profitability they had before the global shutdowns.
Even into 2023, cruise line stocks continue to struggle.
This is especially the case with Carnival Corp. (NYSE: CCL)…
CCL Struggling to Claw Back
Carnival operates in North America, Australia, Europe and Asia.
In addition to its signature cruise ships, the company also operates these popular lines:
- Cunard (remember the Titanic…).
- Holland America.
- Costa (based in Italy).
- Princess (the line that’s featured in The Love Boat).
Even with these popular lines under the company’s control, CCL stock continues to struggle and is not worth investing in right now. (And yes, that’s even with its recent rally — more on that below.)
CCL stock scores a “High-Risk” 1 out of 100 on our Stock Power Ratings system. We expect it to underperform the broader market over the next 12 months.
CCL’s Stock Power Ratings in February 2023.
Carnival Stock: Weak Growth + High Volatility
Looking at Carnival’s financials shows us that the company continues to struggle from the monumental hit it took during the COVID pandemic:
- The company’s latest quarterly update shows an adjusted net loss of $1.1 billion!
- Its occupancy (number of people on ships) was 19 percentage points below its pre-pandemic levels for the quarter.
This shows why CCL scores a 16 on our growth factor.
It also slumps on quality (2).
Its return on equity is a horrendous negative 63.4% … and its net margin is negative 50%.
These are both well below its industry peer average.
So, CCL continues to struggle on the financial side, with fewer passengers and the inability to climb above the red.
Another telltale sign to avoid the stock is its momentum (or lack thereof) … Carnival is down around 45% over the last 12 months as I write. You can see its underperformance in the chart below.
Created in February 2023.
For context, its hospitality services peers (blue line in the chart above) are only averaging a 2.6% decline over the same time.
And while Carnival stock has rallied higher in 2023, our system shows that the underlying numbers can’t sustain it.
CCL stock scores a dreadful 1 overall on our proprietary Stock Power Ratings system.
That means we consider it “High-Risk” and expect it to underperform the broader market.
Bottom line: The cruise industry continues to claw its way back from dismal pandemic losses.
However, CCL shows that the broader industry has a long way to go.
A lack of profitability and negative margins tell us to steer clear of pouring money into Carnival stock.
Before I go: Carnival stock is another one that is participating in the current “fake out” rally. It’s up almost 50% in 2023!
But my colleague Adam O’Dell thinks this rally is about to leave a lot of smaller investors holding the bag.
Carnival and Roblox aren’t alone.
Next week, Adam is going to tell you about what he’s calling “The Next Big Short,” and how you can take advantage as one of the biggest stocks falls again.
Click here to sign up for his free presentation now. It airs on Tuesday, February 14 at 1 p.m. Eastern.
Stay Tuned: How Short Selling Works
Our managing editor, Chad Stone, will have your Weekly Wrap in Sunday’s issue of the Stock Power Daily. Make sure to check that out.
And then I’ll be back on Monday with a guide on how short selling works — but there’s another way to play stocks as they sink lower.
Safe trading,
Matt Clark, CMSA®
Research Analyst, Money & Markets
P.S. I’d love to hear what you thought about my “Stock to Avoid” article today. Was it valuable? Would you like us to continue sharing high-risk stocks on occasion, so you know what to stay away from?
Would you prefer that we only share “Bullish” and “Strong Bullish” stocks?
