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The Carnival share price just plunged again! Here’s why

The Carnival share price continues to drop by double-digits! What's behind this downward momentum and is now potentially a good time to buy?

by | Last updated 26 Nov, 2022 | Consumer Discretionary

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Recently, the Carnival (LSE:CCL) share price took a nose dive after the travel stock made the investor community go crazy with the misrepresented figure of the number of ordinary shares held by Carnival Corporation. No doubt, the error was corrected a few days later, but the confusion it created understandably agitated investors in this cruise line operator.

Then about a week later, a trading update was released that continued the downward slide of Carnival stock. What exactly happened? And is this actually a buying opportunity for my portfolio?

What’s going on with the Carnival share price?

As a quick reminder, Carnival is the world’s largest cruise line company, with a fleet of 92 cruise ships visiting over 700 ports around the world. Its stock is listed both in the United Kingdom as well as the United States and has a total of nine brands under its umbrella, including Princess Cruises, Holland America Line, and P&O Cruises. Each one caters to different people from multiple backgrounds, cultures, and languages. Moreover, Carnival’s seemingly relentless commitment to its line of work has put it among the top 160 on the Fortune 500 list.

The Carnival stock price is currently trading around 632p after following the bearish trend of the stock market since the start of 2022.

The wall street analyst, Steven Wieczynski, reported a huge drop in his estimated price target due to the risk of an upcoming recession. As a result, the Carnival share price dropped 0.7 % in premarket trading on Monday, 27 June, before falling as much as 6.1% during the day.

Then two days later, management released the latest interim results in a business update, which weren’t exactly well-received. Carnival shares tumbled another 20% within 48 hours. That’s not an encouraging sign for shareholders.

What are the challenges Carnival is facing?

Despite making solid progress in its recovery from the pandemic, the cruise operator still has a long road ahead. Carnival’s high amount of debt holdings, which was reported to be around $35bn as of 31 May 2022, is a huge concern. And the continued lack of profitability, even with its fleet back in operation, means this debt problem is even more problematic. Needless to say, with cash flow still in the red, dividends aren’t likely to return any time soon.

There are some positives. Revenue from ticket sales in the last six months came in at $835m versus a measly $22m a year ago. And with more guests aboard its ships, concession sales during trips have also made an impressive jump from $33m to $337.

Sadly, the surging price of oil has made the fuel expense go through the roof. And the group ended up reporting an even bigger operating loss than a year ago. Top that off with a 260% jump in interest expenses from loan obligations, and it’s not surprising to see the Carnival share price suffer.

Time to buy?

Carnival reported a net loss of $6.90 per share for the first half of 2022. No doubt, the negative amount is discouraging for investors. But if I look at the bigger picture, the company is heading towards growth.

Net loss has improved by 22% year-on-year. And cruise line occupancy now stands at around 62% versus 27% in 2021. That’s why I do see this as a possible long-term turnaround opportunity for my portfolio. There is still plenty of solvency risk to consider. But personally, I believe the worst has passed.

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Saima Naveed does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.

Written By

Saima Naveed

Saima spent the early days of her career advancing the finance office of a prominent manufacturing business. After taking a sabbatical, she decided to use her expert knowledge and apply it to the stock market. Now, 10 years later, she manages a substantial portfolio built using detailed and thorough analysis.

Outside The Money Cog, Saima is an avid supporter of empowering women in the workplace. She is currently working very closely with Women of Wonders Pakistan to help other women achieve their career goals.

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Edited & Fact Checked By
Zaven Boyrazian MSc

Zaven has worked in several industries throughout his career, from aircraft factories to game development studios. He has been actively investing in the stock market for the better part of a decade, managing over $1 million across multiple portfolios.

Specializing in corporate valuation, Zaven employs a modern take on the principles set out by Benjamin Graham to find new opportunities at fair prices.

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