3 Reasons to Buy Carnival Stock Like There's No Tomorrow

Key Points

• Lower interest rates should make it easier and cheaper to pay off its debt.

• Following the pandemic, demand for cruises has jumped to historical highs.

• While the debt still poses a challenge, the stock is trading at a cheap price.

• 10 stocks we like better than Carnival Corp. ›

Carnival (NYSE: CCL)(NYSE: CUK) is the leading global cruise operator, and if you haven't been paying attention until recently, you might not realize that it was in serious danger just a few years ago. The pandemic-era climate made it impossible for it to make any money; it's literally the opposite of an essentials company.

Investors scrambled to get out of the stock, and it's still 56% off of its all-time high. That gives you a sense of where it was before this all started, and how much further it has to go to get back there.

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It's one of the market's curiosities that this industry leader could lose investor confidence so definitively. It had been a faithful market beater for years, and cruise closures only lasted a few months. But the fear is real, and Carnival is still bearing the consequences.

That's not to say there's nothing to be concerned about. Carnival has made a spectacular return from zero revenue to $26 billion in sales over the past 12 months, but its debt has ballooned to sky-high levels, and that's what's keeping investors worried. Take a look at how Carnival's price movements have followed the debt, despite the recovery in revenue.

CCL data by YCharts

But if you can overcome the fear and think long-term, Carnival looks poised to completely recover and go much higher. Here are three reasons why.

1. Declining interest rates

Since the main impediment to the investing thesis right now is the company's soaring debt load, lower interest rates should be a boon for the stock price. Lower rates will make it easier and cheaper to pay off the debt. The price has already gone higher as interest rates have started to come down -- and that trend should continue.

Management has paid down the debt responsibly so far, and it has enough money to keep the company running smoothly while servicing the debt. It has already refinanced $7 billion of debt this year at more favorable rates, and it prepaid $350 million of its notes due in 2026. It refinanced the remaining $1.4 billion at better rates, which will save $20 million in interest expenses. It has also increased its revolving credit capacity by 50% at improved rates to increase liquidity and enhance its financial position.

Image source: Carnival.

You can already see the results of these actions in its net debt to adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio, which declined from 4.1 at the end of the 2025 fiscal first quarter (ended Feb. 28) to 3.7 at the end of the second quarter (ended May 31).

The debt, which stands at more than $27 billion today, won't disappear overnight. But as it gets paid off, Carnival will be well-positioned to go back to its leaner former self, and its stock price should follow.

2. Robust demand

Management has been doing a fantastic job of generating strong demand and turning dollars into profits despite paying off the debt. It continues to report records all around, in revenue, operating income, customer deposits, and more.

Inflation remains high, but people are still spending on cruises, which is a testament to the company's viability and resilience. Occupancy is staying at historical highs, with 93% of 2025 occupancy already booked out. The 2026 booked position is so far in line with historical highs.

Higher ticket prices and onboard spending are leading to higher net income, and adjusted net income was $470 million in the second quarter, ahead of guidance by $185 million.

The company is launching new ships, new destinations, and new attractions to attract repeat customers, including Isla Tropicale, an exclusive beach club, and Star Princess, a new ship sailing in the fourth quarter.

3. The price is right

Carnival stock trades at the low ratios of 1.6 times next year's sales and 14 times next year's earnings. That's cheap for a stock with huge opportunities that's still making its comeback.

Again, a low price may be warranted considering the situation Carnival finds itself in today. There's a risk that it won't be able to keep up its high demand and sales before it finishes paying down its debt, leaving it in a precarious situation.

With the risk comes the potential reward. There's some added stability with Carnival being the largest cruise company in the world, and there are many reasons its risk is minimized. It has performed phenomenally over the past few years, demonstrating responsible financial management, and it's innovating to keep customers engaged.

Carnival stock is up 225% over the past three years, and I think it will keep going higher.

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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.