Read This Before Buying Carnival Stock

Shares of Carnival (NYSE: CCL) have bounced back in remarkable fashion. In the past three years, they have soared 172% (as of Nov. 18). The market has become optimistic thanks to impressive financial results that indicate the business is operating from a better position these days.

Investors are right to wonder if the momentum will continue. Before buying this travel stock, continue reading to learn more about the company.

A Carnival vessel. Image source: Carnival.

Carnival benefits from industry tailwinds

It seems that a quarter doesn't go by when Carnival doesn't report records in key metrics. In the third quarter, the company posted record revenue, net yields, and customer deposits. These signs all point to solid demand for cruise travel, which is certainly welcome news following the temporary disruption caused by the pandemic.

Investors can have confidence in the long-term picture, believing that Carnival is in position to generate durable growth. The cruise market today only represents a tiny sliver of the worldwide vacation market. The industry is also attracting younger and first-time cruise travelers, expanding its demographic.

Rising profits are helping to improve the financial picture

During the fiscal 2025 third quarter, Carnival reported $2.3 billion in operating income. This was up 4% year over year, which isn't too exciting. However, that profitability metric is better than the $279 million loss in the same period of 2022. The company's bottom line has drastically improved since the depths of the health crisis.

Management is taking advantage of the situation to clean up Carnival's balance sheet. Long-term debt, which totals $26.5 billion, is decreasing. With ongoing refinancing activity, the business has seen upgrades from the three major bond rating agencies.

This isn't to say that Carnival is home safe just yet. The company's market cap is $33.6 billion, so to see a debt load that's almost 80% of that might be troubling to those investors who desire their holdings to be in a much stronger financial position. However, the positive trend is undeniable. The company is definitely sailing in the right direction.

Should investors be worried about a recession?

Any company that depends on discretionary spending will undoubtedly be hurt in a possible recessionary scenario. Carnival falls into this category. Should the economy take a turn for the worse, consumers will surely tighten up their purse strings and be more discerning with how they spend their money.

This poses a risk. Carnival appears to be in solid shape, but there's a chance that its revenue will take a hit, and earnings will fall. What's more, the business could be forced to raise capital. These issues should be short-lived, though.

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