Carnival Cruise Stock is a bargain … for another time

<p>There are times that will stick with investors forever, and coronavirus impact in 2020 is one of those moments. It has given a crushing blow to Carnival Cruise (NYSE: CCL), Royal Caribbean (NYSE: RCL) and other cruise operators. Although CCL shares rose 26.5% from their lowest levels this week, the share is still 80% lower than the 2020 peaks.

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From its peak times, shares have fallen by about 85%, despite the recent bounce.

Pure destruction. That’s all you can say when you look at the chart. Of course, where some see destruction, others see opportunity. Is there a possibility in Carnival Cruise? Likely.

However, we can be sure that the stock has completely baked out in all risks. Freezing cash flow, stopped operations and how the business will be affected in the future is all you should think about. Can Carnival Balance even handle all this stress?

There’s a reason a stock falls 80% in a few days, and that’s not good.

Too early to tell

There are many readers who are researching this group and looking for someone to say CCL shares and its peers are now a buy. Of all the stocks in the world, these are some of the most difficult to deal with.

From peak to valley, the S&P 500 has decreased more than 32% so far. The Dow Jones Industrial Average is even lower. These are massive moves that happen in just a few weeks of trading. And the worst part is that we are still unlikely to have seen the bottom. But in the midst of that carnage, we have seen a number of high-quality companies sell.

The findings may improve in the coming weeks, but as it looks, many of these stocks are 30% to 40% or more of high peaks.

In addition, it is companies with high quality growth or companies without balance sheets and shares that pay good dividends that are still covered by free cash flow.

These are stocks like Nvidia (NASDAQ: NVDA), Alphabet (NASDAQ: GOOGL, NASDAQ: GOOG) and Verizon (NYSE: VZ). Where do CCL shares fit into all this?

Well, its dividend yield has increased to 20%, making it unsustainable in the current environment. The industry – including Carnival, Royal Caribbean and Norwegian Cruise Line (NYSE: NCLH) – has stopped operations. At this time, it is not only the smart and safe thing to do, but it will also help preserve capital. For who with the right mind is thinking of a cruise right now, just to risk being stranded at sea with a boarding break of Covid-19?

Stopping this, however, will have a rapid impact on revenue, EBITDA and cash flow. Then come the customer’s refund requests.

Where from CCL shares?

After such a brutal sale, investors are clearly looking for opportunities. There may well be opportunities in CCL warehouses, but there is simply too much noise around this warehouse.

How does a company support itself without any revenue coming in? We are talking about a company that, since its most recent filing, had $ 518 million in cash, $ 2.05 billion in current assets and $ 9.1 billion in current liabilities. And that was in November!

The obvious problem here is that the company will not be able to fulfill its short-term commitments without an inflow of cash. The industry is hoping for some form of government assistance, and the latter seems open to providing it.

While this is potentially good news, it’s hard to get too enthusiastic about a company that needs emergency financial assistance from the federal government. Just look at how Ford (NYSE: F) and General Motors (NYSE: GM) have done over the past decade. That industry has never really recovered from the financial crisis, at least from an equity perspective.

I’m sure people will go on cruises again, but when it comes to when I’m not sure. All I know is Carnival’s operations are stopped and its stock is still at risk until it changes. I would rather miss a little upside down, but wait until there is more security in the situation.

Matthew McCall left Wall Street to actually help investors – by getting them into the world’s biggest, most revolutionary trends FOR anyone else. The power to be “first” gave Matt’s readers the chance to bank + 2,438% in Stamps.com (STMP), + 1,523% in Ulta Beauty (ULTA) and + 1,044% in Tesla (TSLA), just to name a few . Click here to see what Matt has up his sleeve now. Matt does not directly own the above-mentioned securities.