Best Stock to Buy Right Now: Carnival vs. Roblox

In 2020 and 2021, the COVID-19 pandemic stirred up fierce headwinds for some companies but generated strong tailwinds for others.

One of the companies that faced an existential crisis was Carnival (NYSE: CCL), the world's top cruise line operator. But one company that flourished was Roblox (NYSE: RBLX), the online gaming company that encouraged cooped-up kids to build and share their own digital worlds.

As the pandemic's height passed, Carnival's business recovered as global travel resumed. But Roblox struggled as many of its tween users went back to school. Yet over the past four years, Roblox's stock still rallied 33% as Carnival's stock only rose 9%.

Let's see why Roblox outperformed Carnival by a wide margin -- and if it remains the better investment.

Image source: Getty Images.

How Carnival survived its existential crisis

In fiscal 2020 and fiscal 2021 (which ended in November 2021), Carnival's total passengers and occupancy percentage plummeted as global travel ground to a halt.

A series of COVID-19 outbreaks aboard its ships exacerbated that decline, which reduced its annual revenue from $20.8 billion in fiscal 2019 to just $1.9 billion in fiscal 2021. It also racked up net losses of $10.2 billion in fiscal 2020 and $9.5 billion in fiscal 2021, and it stayed unprofitable until fiscal 2024.

To stay solvent throughout that crisis, Carnival idled many of its ships, slashed its spending, and nearly tripled its year-end debt from $11.5 billion in fiscal 2019 to $33.2 billion in fiscal 2021.

But over the following four years, Carnival's business gradually recovered as more passengers returned, its occupancy percentage exceeded 100% again, and its higher average fares and onboard spending boosted its average spending per customer.

In fiscal 2023, Carnival's annual revenue rose to $21.6 billion and finally exceeded its pre-pandemic revenues in fiscal 2019. Its revenue rose another 16% to $25 billion in fiscal 2024, and it finally squeezed out a net profit of $1.9 billion as it reduced its year-end debt to $27.5 billion. The company was still shouldering $26.5 billion in total debt at the end of its latest quarter, but refinanced a large portion of that debt at lower rates to ease the pressure on its balance sheet.

From fiscal 2024 to fiscal 2027, analysts expect Carnival's revenue to grow and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 5% and 24%, respectively. That growth should be driven by its new destinations in the Bahamas, expansion across Asia, more onboard services, and its addition of 10 more ships (to its fleet of 94 ships across more than 800 ports) by the end of fiscal 2028.

Carnival certainly isn't immune to the unpredictable macro headwinds, but its stock looks like a bargain at 11 times next year's earnings.

How Roblox stabilized its post-lockdown business

Roblox thrived during the pandemic shutdowns because a lot of its tween players created and shared games on its platform. Its games can be created with a simple block-based system that doesn't require any coding knowledge, and they can be monetized with features to earn an in-game currency called Robux. Roblox generates most of its revenue by selling Robux to its players, but it's also building an advertising business with integrated videos and in-game metaverse ads.

In 2021, Roblox's bookings surged 45%, its daily active users (DAUs) jumped 40%, its average bookings per DAU (ABPDAU) rose 4%, and its total hours engaged soared 35%. That explosive growth was primarily driven by its popularity among younger stay-at-home students during the pandemic.

In 2022, all four of those metrics cooled as the pandemic's restrictions eased and those students went back to school. That slowdown caused many investors to dismiss Roblox as a pandemic-era fad stock, and its shares sank to a record low of $21.65 in May 2022.

But today, Roblox's stock trades above $100. It regained its mojo as its bookings surged 23% in 2023 and 24% in 2024. Its year-end DAUs jumped from 58.8 million in fiscal 2022 to 85.3 million in fiscal 2024 as it gained a higher mix of older and overseas users.

That robust growth countered the notion that it was a fad stock, and analysts expect its bookings to grow at a healthy CAGR of 31% from 2024 to 2027. However, Roblox is still expected to stay unprofitable as it grapples with the high costs of expanding its infrastructure, upgrading safety features, and converting users' Robux back to cash. The company was still shouldering nearly $1 billion in debt in its latest quarter, and its stock isn't cheap at 9 times next year's bookings.

The better buy: Carnival

Roblox's business is stabilizing, but it hasn't proven that its capital-intensive business model is sustainable. Carnival is growing more slowly, but it's profitable, it only faces a few competitors, and its stock looks like a bargain in this frothy market. So while Roblox outperformed Carnival over the past few years, I think Carnival could be the better buy now.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Roblox. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.