3 Reasons You Should Buy Carnival Stock in July

Companies that investors wouldn't touch with a 10-foot pole during the COVID-19 pandemic are now starting to look like attractive opportunities. This is precisely how to describe the situation with Carnival (NYSE: CCL). The leading cruise line operator was decimated at the start of this decade. But it's now sailing in much smoother water.

It's time for investors to get on board. Here are three reasons you should consider buying this travel stock in July.

Image source: The Motley Fool.

1. Demand tailwinds

The first reason to add this business to your diversified portfolio is demand trends. Since the cruise industry was temporarily devastated starting in 2020, as operations were halted to stop the spread of the virus, Carnival has experienced a resurgence. Its sales in Q2 2026 (ended May 31) were 5.3% higher than in the same period of fiscal 2025. That top-line figure was a record, as were customer deposits of $9 billion.

Looking ahead, the industry is well-positioned to benefit from powerful tailwinds. The cruise market is attracting not only first-time cruise passengers but also a younger demographic. Moreover, cruise trips are viewed as offering a much better value proposition than land-based alternatives.

And lastly, the cruise industry accounts for only about 2% of the entire global tourism market. This leaves a lot of untapped potential to acquire new customers. Given Carnival's growth plan to expand its fleet and provide service to new destinations, it's looking to capitalize on these trends.

2. Cleaner financials

Carnival's improving financial picture is the second reason to buy shares. The business was forced to take on additional debt to navigate the COVID-19 pandemic. Its debt burden peaked at $35.1 billion in the first quarter of 2023.

However, management has made it a priority to clean up the balance sheet. As of May 31, Carnival had $24.9 billion in long-term debt, down almost 7% year over year. In late June, S&P Global upgraded the company's credit rating to investment grade, a vote of confidence for Carnival's financial standing.

The company is being helped by its growing earnings stream. Operating income in fiscal 2025 of $4.5 billion was 25% higher than the year before. And free cash flow totaled $2.5 billion over the last six months, ensuring the company has resources to continue paying down debt.

Carnival resumed dividend payments in February this year, with the current quarterly payout of $0.15 supporting a healthy dividend yield of 2.1%. The business also buys back stock. Its repurchases totaled $381 million through the first half of fiscal 2026. These moves are part of Carnival's plan (announced in March) to return $14 billion to shareholders before the end of fiscal 2029.

3. Cheap valuation

The stock's valuation is the third reason this is a compelling opportunity. Investors can scoop up shares at a forward price-to-earnings ratio of 13.1. It's difficult to find a quality company at such a deep discount to the overall market.

Consensus analyst estimates call for Carnival's earnings per share to increase at a compound annual rate of 11.2% from fiscal 2025 to fiscal 2028. This is a solid outlook, especially when combined with the possibility of multiple expansion.

It's not difficult to figure out why the market doesn't assign a higher valuation ratio to the stock. As mentioned, the business still carries a sizable debt load, creating an overhang of financial risk. And while long-term demand looks promising, Carnival may still face some cyclicality. After all, cruise vacations are a discretionary purchase that households would delay in tough times.

Even after accounting for these negative factors, investors should consider buying shares. Carnival could be a winner over the next five years.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.