Carnival Stock Is Crushing the Market -- Time To Buy?

Key Points

• Carnival's ships are full, prompting the company to expand its fleet.

• The cruise line has managed its heavy debt load successfully.

• Carnival sells at a lower P/E ratio than its peers.

• 10 stocks we like better than Carnival Corp. ›

Perhaps one of the more dramatic recoveries over the past few years has been that of Carnival Corp. (NYSE: CCL). The forced shutdown of the cruise industry during the early stages of the COVID-19 pandemic resulted in the company losing its only significant revenue source for over a year. Even when Carnival ships could sail again, relaunching its ships and drawing back its customer base was a years-long process.

Today, the environment is different. Not only are its ships full, but also, demand is such that it has had to build additional cruise ships. Amid that recovery, Carnival's stock price saw massive gains.

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The question now for investors is whether they can still benefit from buying the stock, or have they missed the boat on significant gains?

Image source: Carnival Corp.

The state of Carnival

The good news for Carnival Cruise Lines investors is that it remains the industry leader. Although numerous companies compete in this industry, Carnival and its multiple cruise brands (including Costa Cruises, Cunard Line, Holland America Line, and Princess Cruises) account for 42% of the industry's passenger count, according to Cruise Market Watch.

Moreover, even though the state of the economy is uncertain, it is filling these ships. In the first six months of fiscal 2025 (ended May 31), the occupancy percentage stood at 104% (the industry defines 100% occupancy as two people in every cabin). This is critical, as it shows that concerns about an economic slowdown have not dampened demand for cruise vacations.

Additionally, bookings for 2026 match record levels. This means it is filling its cabins without having to offer as many discounts, thereby bolstering its top and bottom lines. With that, it is working to increase its capacity, planning for the launch of the Carnival Festivale in 2027 and the Carnival Tropicale in 2028.

Carnival's financials

Amid those improvements, revenue increased by 9% year over year to $12 billion for the first half of fiscal 2025. In contrast, Carnival limited cost and expense growth to 3%. Thus, the $486 million in net income for the first two quarters of 2025 was well above the $123 million loss in the same year-ago period.

Furthermore, this occurred despite a $718 million interest expense for the period. The high interest costs are due to the aforementioned pandemic shutdown, which led the company to incur massive debts to stay in business. Despite efforts to pay it down, total debt stands at just over $27 billion, a heavy burden considering the $10 billion in book value.

Nonetheless, Carnival paid off $2 billion in debt over the last year. Since it has only about $2.1 billion due through the end of 2026, the company may be able to retire that debt without refinancing at higher interest rates. Moreover, since it refinanced $7 billion in debt over the past year at lower rates, it has created a virtuous cycle of lower debt and lower interest payments. Since it benefits from those improving finances and full ships, Carnival's stock price is up over 90% in the last 12 months.

Additionally, the stock trades at a P/E ratio of 17, making it a less expensive stock than Royal Caribbean, fast-growing Viking Holdings, and even Norwegian Cruise Line Holdings, which had expressed some concerns about its business earlier this year. That could mean its stock rally continues as full ships, an expanding fleet, and a falling debt burden keep Carnival sailing in smooth waters.

Data by YCharts.

Is it time to buy Carnival stock?

Given its current state, Carnival stock is a likely buy.

Admittedly, the stock has risen significantly, and the debt burden remains massive. Its fortunes could also turn negative if an uncertain economy leads to fewer bookings and an increased need to offer discounts.

Fortunately, the economy has not stopped Carnival from achieving record bookings. This indicates that the company has navigated past its struggles from the pandemic. It can also expand its fleet -- and likely its revenue and profits -- even as it services its considerable debts.

Despite such attributes, the stock sells at a low valuation despite a significant increase. That indicates Carnival stock is likely not done rising, and investors still have time to benefit from Carnival's improved business and financial conditions.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. and Viking. The Motley Fool has a disclosure policy.