Carnival shares are experiencing a huge crash. At its low point, do we want to buy Carnival shares now or not? In this article you will find a comprehensive analysis of Carnival shares. We analyze both the long term opportunities and the short term financial valuation. Based on strategy, risk, price expectation and financial analysis, we can judge whether to buy Carnival stock or not.
Let's get started!
Stock Analysis: Carnival (CCL)
Basically, you want to buy Carnival stock or not because you believe in the company. Founded in 1972, Carnival Corporation & plc (CCL) provides leisure travel services. The company is headquartered in Miami, Florida. And it provides trips to all major cruise destinations worldwide. Carnival operates a portfolio of national, regional, and global cruise brands specializing in selling cruises, vacation packages, and services.
The company operates ten different cruise lines and boasts of being the largest night cruise company in the world. Every year, the company serves over 8.5 million passengers on over 100 ships. The cruise brand portfolio comprises:
- AIDA Cruises
- Carnival Cruise Line
- Holland America Line
- Princess Cruises
- Costa Cruises
- P&O Cruises (UK)
- P&O Cruises (Australia)
Do we want to buy Carnival shares or not after the corona crisis? The COVID-19 pandemic caused Carnival to suspend cruise operations in March 2020. Carnival relaunched US cruises on July 3, 2021, with Carnival Vista departing from Galveston, Texas. Since then, it has adopted COVID-19's detailed protocols.
Besides owning and operating Holland America Princess Alaska Tours, the company also operates Tours to Alaska and the Yukon Territory. Because of the low prices offered by the company, it has gained acceptance in many countries. And to ensure the safety of its consumers, the company uses high-level surveillance. In an effort to curb competition and increase profit margins, they have devised mechanisms to expand cruise lines.
Three divisions comprise Carnival Corporation & Plc's strategic positioning: luxury, premium, and contemporary. The requirements, demographics, and characteristics of these divisions vary greatly. The company has ensured the needs of all its divisions are met, which has allowed it to continue growing over the years.
Price Target of Carnival (CCL)
Do we want to buy Carnival shares based on price expectations? Analysts mainly see an upward price expectation for the next few years. Whether they are right? Time will tell.
According to Market Watch, based on analysts' offering, the average price target for Carnival (CCL) stock is $20.39, with a high estimate of $38.00 and a low estimate of $7.70.
According to Wall Street Zen, based on analysts' offering, the average price target for Carnival (CCL) stock is $21.06, with a high estimate of $38.00 and a low estimate of $7.70.
According to Tip Ranks, based on analysts' offerings, the average price target for Carnival (CCL) stock is $19.15, with a high estimate of $30.00 and a low estimate of $7.70.
Buy Carnival shares? Our financial analysis
Carnival shares are at their lowest point since 1993. Does this make Carnival stock buying attractive or not? Well now, price doesn't say much. What matters is the financial valuation. Let's take a brief look at that one.
- Valuation: Carnival shares have a relatively high valuation, despite the fixe price drop. The only bright spot is its attractive book value, with a P/B ratio of 1.06. The expected P/CF for next year is 17.73, which is on the high side compared to the industry.
- Growth: sales for 2023 are expected to be equivalent to before the covid-19 crisis. This means rapid growth in a relatively short period of time
- Profitability: at the moment they are making dramatically large losses
- Momentum: the price momentum is also dramatically bad
Investing in stocks is about looking ahead. Based on our financial analysis, we do not want to buy Carnival stock at this time. Yes, the organization is expected to get its revenue growth back on track relatively quickly. But the organization is disrupted. It's an uncertain time. And even in that perspective, the current financial valuation is not yet favorable enough to absorb unforeseen blows. After all, if Carnival does not recover in time, its shares will be unattractive.
Buy Carnival shares or not based on financial analysis? We opt for not for the moment. Should the stock price fall further (from $9.62), it may be worth considering.
Strengths and Weaknesses of Carnival (CCL)
Do we want to buy Carnival shares for the long term? If so, we need to do further research on its qualities and areas for improvement. You don't buy Carnival shares lightly. You do this because you believe in the company. Strong companies grow. If you believe that this company will grow, then you want to buy Carnival shares. Be sure to consider the opportunity cost. Investing in Carnival stock means you can't invest the money in other value stocks.
Strengths of Carnival
- The company's size is one of its strengths since it is the largest cruise operator in the world. Besides having a large "fleet capacity," it operates a dozen cruise brands that are widely known.
- Its "brand names portfolio" appeals to a wide range of niche markets. As a large company, the company has a substantial cost advantage over other companies in the industry, which is another strength.
- Since the company generates a high level of profitability, it is capable of carrying out its operations with little difficulty compared to its competitors. For instance, the company generated an average net income of $-9.501B between the financial years 2010-2022. That is significantly higher than the industry average.
- One of the company's strengths is its aggressive and effective marketing. The company invests heavily in TV and print media.
- In addition to the above strengths, Carnival Corporation & Plc has a large share of the market in several major countries, such as France, the United Kingdom, and Italy. The share in each of these countries exceeds 45 percent, with the share in Italy being as high as 68 percent.
Weaknesses of Carnival
- About 52 percent of the company's revenues come from clients in the United States. This type of overdependence impairs the company's ability to deal with fluctuations in the United States economy, which may negatively affect the company.
- Carnival Corporation has seen its revenue decrease by 28% per year over the last five years. As a result, it falls into an unattractive cohort.
- The company has taken positive steps toward diversity, equity, and inclusion. However, success has not yet been achieved. The company should expand its recruitment and selection process so that it can hire more minorities and people with underprivileged backgrounds.
- As a result of the Covid-19 pandemic and the blockage of the Suez Canal, Carnival's supply chain was disrupted globally. Carnival Cruise Lines is still heavily dependent upon the existing supply chain. Even though the current supply chain is cost-efficient, it leaves Carnival vulnerable to further disruptions in South East Asia.
Threats and Opportunities for Carnival (CCL)
Do we want to buy Carnival shares or not for the very long term? In this case, we need to look at the opportunities and threats primarily from a strategic perspective. Both from the organization's point of view and from the current and potentially new markets. Here are some insights for inspiration.
Opportunities for Carnival
- Cruises have grown significantly in the past decade but still make up a small portion of the global vacation market. However, cruise revenue is declining in the US, but it is growing in Europe and Asia, which provides Carnival with opportunities to expand in these areas.
- Additionally, Chinese consumers' disposable income is climbing, which presents another opportunity for the company to grow in this area. Chinese disposable income is growing at a rate of 10 percent each year. In this region, customers are currently seeking luxury cruises as a vacation option, which is a great opportunity for the company to expand its business there.
- Carnival Company has another opportunity to grow its operations through mergers and acquisitions.
- A sophisticated technology could be used in the production of Carnival Cruise Lines, resulting in a decrease in expenses per unit, allowing the company to offer its Carnival Cruise Lines at a lower cost to cost-sensitive customers.
- Moreover, the business has a chance to focus on the improvement of its Carnival Cruise Lines by providing advanced and environmentally friendly features.
Threats for Carnival
- Due to a number of rivals in the market, there is an extreme amount of competition posing a huge threat to the company.
- The Carnival Corporation avoids paying corporate taxes in the United States by utilizing special tax loopholes. The closing of these loopholes may adversely affect their financial statements and fiscal bottom lines in the future.
- Since 2009, Carnival Cruises have experienced many accidents, such as people falling overboard and ships colliding with each other. Customers are more cautious about going on Carnival because of their reputation for problems on the ships.
- Fuel prices have significantly affected the cruise industry due to their increase and instability. Furthermore, the high fuel costs have forced them to charge higher prices to their passengers. Therefore, a significant increase in fuel prices may affect the Carnival.
- To ensure the company has repeat customers, these companies need suppliers of high quality that can be counted upon to ensure they have repeat business.
Risks analysis of Carnival (CCL)
As COVID-19 expires, Carnival's numbers are improving, which may make Carnival shares attractive to investors. However, the company has already incurred significant debt and sold so many shares that there is nothing left for long-term permanent shareholders.
The huge drop in price obviously reduces risk based on price. However, the crucial question in buying Carnival shares or not lies in the future earnings outlook. Yes, the company has performed strongly in the past. It may be able to resume this in the long run. For the short term, it is uncertain. And in that perspective, we see the opportunity in other best stocks to buy now.
Conclusion: to buy Carnival shares or not?
Based on our analysis, we do not want to buy Carnival shares. For the short term, there are still too many uncertainties. Especially based on the financial results. For the long term, buying Carnival shares may be attractive, but that is precisely the essence of investing. As far as we are concerned, there is still too much uncertainty and the price is likely to fall further in 2022.
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