Shares of Carnival Corp. (CCL 1.47%) have been flying this year as investors have been buying up the cruise stock amid a resurgence in travel demand. The company has been generating some strong growth of late and with improving cash flow it also hopes to pay down its debt. All in all, the company looks to be on the right track. But with the stock already up 80% this year, is it too late to invest in Carnival, or is its rally just getting started?
Is it smooth sailing from here on out?
The pandemic disrupted travel and cruise ships in particular became worrisome, as they were often synonymous with COVID-19 outbreaks. Now, however, with the health emergency relating to the pandemic officially over as of last month and peak summer season upon us, Carnival's business could be in prime position to benefit from an increase in demand.
NYSE: CCL
Key Data Points
In March, it released its first-quarter earnings results. Revenue totaling $4.4 billion for the period ending Feb. 28 more than doubled the $1.6 billion that Carnival reported in the prior-year period. And what was particularly impressive was the company also said that it "experienced the highest booking volumes for any quarter in its history."
In addition, Carnival's adjusted operating cash flow was positive for the quarter and as that continues, it will pay down its debt -- which it says it believes has peaked. As of the end of the quarter, the company reported long-term debt of $32.7 billion, up from just under $32 billion as of the end of November 2022.
Analysts keep upgrading the stock
On Monday, analysts at multiple brokerages upgraded the stock amid the cruise ship operator's strong results. Demand for cruises has been rallying and analysts anticipate better results ahead for Carnival. By and large, analysts have been upgrading their price targets for Carnival in 2023.
However, the stock may have climbed a bit too quickly, even for analysts. The stock is already trading above its consensus price target of over $12. There could, however, be higher price targets to come this year if Carnival can continue to improve its top line and bring down its debt load.
Still a long way from breaking even
Travel demand has been strong this year and Carnival has been benefiting from that. But the company's most recent quarter was still unprofitable and it has a long way to go in proving that it's on solid footing.
CCL Net Income (Quarterly) data by YCharts
With the economic conditions still shaky, there's still plenty of risk here, and the losses may continue for some time.
Should you buy Carnival's stock right now?
Over the trailing 12 months, Carnival has incurred operating losses totaling more than $3 billion. And with a pile of debt still on the books, this is far from a safe stock to buy. Although travel demand may be strong right now, the economy isn't in great shape. This is a risky stock to be holding right now and its gains have outpaced the upgrades analysts have set for it.
While it's a hot buy today, the danger with this travel stock is if Carnival's earnings reports show any signs of weakness this year, the bearishness may return. Investors are better off waiting for the company to at least turn a profit before considering buying shares of the cruise stock.
