Investing is all about putting money to work now that you hope will be worth more later. It's OK to dream big -- say, of a fivefold increase in six years -- but you have to pick the right stocks.
What stocks can turn $1,000 today into $5,000 come 2030? Two names I like are Carnival (CCL +1.95%) and Roku (ROKU +0.23%). Let's take a closer look.
NYSE: CCL
Key Data Points
1. Carnival
You might think that the world's largest cruise line operator is an odd bet to be a five-bagger by 2030, but there are a few factors that could find the stock cruising in the coming years. Let's start with leverage. Cruise lines took on a lot of additional debt during the pandemic-related shutdown in 2020 that lasted well into 2021.
Leverage isn't typically a positive thing, but let's play this out. Carnival's market cap is $20 billion. Its debt-saddled enterprise value is almost $50 billion. A fivefold advance in Carnival's market cap to $100 billion would find its enterprise value -- all things being equal -- less than tripling to $130 billion. Reality can be kinder if Carnival uses its newfound profitability to pay down its debt and repurchase its shares. It spent $4 billion last year alone to pay down its debt. However, based on today's starting line, the point here is that Carnival's enterprise value would have to appreciate by only 160% in six years.
Turning to Carnival's business, it's doing a lot better than you probably think. Carnival has a record booked position for future sailings, meaning that passenger demand and what customers are willing to pay to cruise in the near future have never been higher. Some naysayers believed the cruising industry would never be the same after the worst of the pandemic, but Carnival posted record revenue for its fiscal first quarter earlier this year.
Image source: Getty Images.
The near-term outlook is encouraging, and the valuation is compelling. Carnival is trading for a reasonable 16 times what analysts see it earning in this fiscal year (which ends in November). The multiple drops to 11 if we look out to next year. If we go all the way out to 2030 -- something that isn't really recommended, but necessary to play this six-year scenario out -- analysts see Carnival earning $3.25 a share. This is less than five times where the shares are now. It's also a market-cap-to-earnings ratio of less than 25 if the stock has appreciated fivefold, a premium but realistic valuation.
It might even be cheaper. Carnival has consistently landed ahead of Wall Street profit targets over the past year and change, including double-digit percentage beats in its last three financial reports. With the world's largest fleet of ships across various price points, Carnival is well suited to sail through the inevitable waves that will rise and fall in the next six years. The future is bright for cruise line stocks in general and Carnival in particular.
NASDAQ: ROKU
Key Data Points
2. Roku
Next up we have Roku. Let's start at the starting line, as we did for Carnival. Roku stock closed at $53.65 on Thursday. It traded as high as $490.76 three summers ago. Its share count is marginally higher and its non-lease long-term debt obligations are lower. So if Roku does pop fivefold, to roughly $268 in six years, it would still be a little more than halfway back to its peak.
Why is Roku out of favor? It's not the top-line growth. Revenue has nearly doubled in the last three years. It's not the platform's popularity, as the 81.6 million households using the platform to stream digital content on their TVs have never been more engaged than they are now.
There are some competitive threats and monetization challenges, but these should prove temporary. Roku has been able to grow despite competing against some of the richest consumer tech companies in the country for years. Near-term fears about competition appear overblown. Recent losses and stagnant average revenue per user may take some time to turn positive, but that is the beauty of this six-year timeline for getting back on track in a niche that will only become more important over time.
