<p>With a subsequent 12-month price-to-earnings ratio of 4.4, you would think that the Carnival (NYSE: CCL) stock is a steal at the current price point. And maybe it is. As the old saying goes, you should buy when there is blood on the streets, right?
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However, there is a fine line between a find and an upcoming train. Timing is everything in the stock market, and the spread of the new corona virus has made investment entrances and exits more difficult.
It is worth the effort to weigh the pros and cons of owning CCL shares as the dividend can be huge. One thing is for sure though: this investment is not for everyone. A stomach of steel and the willingness to accept risks are two prerequisites. Do you have what it takes?
A tragic event
Maybe it’s a respect for science, or maybe it’s just a gut reaction. In any case, people are dirty about cruise ships because they are seen as dangerous given the pandemic.
“Cruise ships are not the cause of the virus, nor are they the cause of the spread in society,” explained Carnival CEO Arnold Donald. That may very well be the case, but financial success is not about reality. It’s about perception, and it can take a while before the public perceives cruise ships as safe.
Of all the major cruise lines in America, Carnival has basically been aimed at the poster child of bad coronavirus-related publicity. Long-term CCL stock investors will not forget the fateful day when it was announced that Carnival Diamond Princess cruise ships had more than 700 infected passengers and crew members.
About 3,700 passengers aboard the Diamond Princess were quarantined off the coast of Japan. What was supposed to be a fun holiday cruise quickly became a nightmare. Tragically, several passengers passed away after landing the cruise ship.
Not long after, Carnival-owned Princess Cruises announced the closure of all its operations. The CCL share fell 31% after that announcement. California Gavin Newsom warned cruise operators of “the danger of the industry collapsing.” Social media speculators speculated that the cruise market would never recover.
Attracting passengers back will not be easy
To date, at least 1,500 coronavirus-related infections and 39 deaths have been reported in connection with carnival cruise ships. Donald’s rather unsatisfactory answer feels more like an apology than a mea culpa seriously:
“This is a global generational event – it’s second to none … Nothing’s perfect, okay? They will say, ‘Wow, these things Carnival did well. These things, 20/20 in retrospect, they could have done better. ‘”
Obviously, there is a lot of work to be done before the public really feels comfortable aboard cruise ships again. Carnival is considered a leader in this business. The success or failure of the entire market may depend on Carnival’s efforts to control the damage.
A good first step would be for the company’s CEO to take responsibility for his company without any excuses. In general, there was probably little consolation when Donald denied Carnival’s involvement in the aforementioned tragedy, arguing that critics would “analyze what New York did to deal with the crisis, what the Vice President’s working group did, what the Italians, Chinese, South Koreans and Japanese did. ”
The CEO added, “We are a small part of the real story. We are drawn to it. “It would probably be better for the company to accept its role in the tragedy and take proactive measures to prevent it from happening again. Until that happens, it will be very difficult to turn the ship around and regain public confidence.
Takeaway at CCL warehouse
Holding shares in CCL shares can be a painful proposition in the coming weeks. Before Carnival can “fix the ship”, it must fix its reputation. This will take time and may not happen this year. Until then, try to stay on a steady keel and think twice before jumping on board this volatile investment.
At the time of writing, David Moadel had no position in any of the above securities.