Why Is Carnival Stock Down 26% This Year?

One of the travel industry's more remarkable turnaround stories is starting to take on water. Shares of Carnival Corp. (NYSE: CCL) have declined 26% in 2026. Smaller rivals Royal Caribbean and Norwegian Cruise Line are down 8% and 34%, respectively.

It's been a disappointing year, but Carnival and its peers have seen worse. The country's three largest ocean cruise liners were effectively shut down for more than a year in the wake of the COVID-19 crisis. It took another year after that to ramp up to full operations. Despite the obstacles, Carnival is generating record top-line results. Its trailing revenue of $27.3 billion is more than 30% above its pre-pandemic high-water mark of fiscal 2019.

Carnival keeps growing. It reinstated its dividend. It has rattled off a dozen consecutive earnings beats. Unfortunately for Carnival investors, like its ships, those on board are looking more at where the vessel is heading than where it's been. With another Wall Street pro issuing a cautious analyst note this week, let's look at some reasons why Carnival is out of favor -- and why it may even be a buying opportunity.

Image source: Getty Images.

Passing ships

Carnival will offer up quarterly results later this month. It operates on a fiscal calendar that ends in November, and the outlook for its upcoming fiscal third-quarter report is dimming. Chris Woronka at Deutsche Bank became the latest analyst to take a cautious approach ahead of the fresh financials. He lowered his price target on the shares from $34 to $29 on Tuesday, sticking with his earlier hold rating.

He sees Carnival exceeding its earlier guidance for the August-ended fiscal quarter, but expects it to be a smaller beat than usual. The world's largest cruise line operator, by revenue, landed 21% ahead of where Wall Street pros were perched last time out.

The market wasn't impressed by those results, but that was mostly because its guidance for fiscal 2026 was soft. With oil prices heading higher since then, it will be hard to hide the impact that rising operating costs will have on its bottom line. Woronka is bracing for a challenging fiscal fourth quarter, and his firm is lowering Carnival's 2027 forecasts to Street-low levels.

Calling bottom on the bottom line

Revenue growth is slowing, but even last quarter's 5% uptick is pushing overall top-line results to new highs. The news has been better in the near term on the other end of the cruising bellwether's income statement, but it's still somewhat deceptive.

Yes, Carnival's adjusted earnings soared 15% in the fiscal second quarter, three times its top-line increase. It was its second-largest beat over the past year. The last dozen reports have been impressive, but again, still somewhat deceptive.

Data source: Yahoo! Finance. EPS = earnings per share (adjusted).

Despite the strong winning streak, Carnival stock's 45% gain over the last three years lags the market. It's also worth noting that the bottom line isn't matching the top line at all-time highs. Carnival's trailing net income of $3.1 billion is just shy of its fiscal 2018 peak.

Making matters worse, Carnival's fully diluted share count has more than doubled since fiscal 2018, so earnings per share have been cut in half. This isn't a deal breaker. Let's get into why I like Carnival as an investment here.

Don't rock the boat

It isn't easy for a ship to navigate through foggy conditions. The same can be said about the cruise ship business. The global economy is facing inflationary pressures, and with its namesake cruise line targeting mass-market passengers, Carnival will be squeezed if consumers don't have enough money to bankroll watery getaways. Costs are rising, and if bookings start to slow, Carnival can get squeezed at both ends.

I still think Carnival can be a bon voyage for investors at today's compelling valuation. Carnival is trading for just 10 times trailing earnings. Look out to fiscal 2027, which starts in less than three months, and that multiple drops to less than 9.

Don't get caught up in the per-share profitability being half of what it was eight years ago. The stock is down nearly 70% from its 2018 all-time high. The valuation is compelling, and consumer appetite for cruising remains strong as long as the economy holds up. Carnival is down for legitimate reasons, but it's not out. It's just out of favor, and that can unlock a pleasure cruise for contrarian investors.

Rick Munarriz has positions in Royal Caribbean Cruises. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.