Miami-headquartered cruise operator Carnival (NYSE:CCL) is famous on multiple continents for providing fun getaways. But there’s nothing fun about holding CCL stock through a drawdown, and investors should prepare for choppy waters ahead.
It’s been over two years since the Covid-19 pandemic came to the U.S. and wreaked havoc on the nation’s businesses. Among the hardest hit companies back then were cruise lines, including Carnival.
Now that Covid-19 lockdowns have mostly been lifted in America, it should be a perfect time to invest in Carnival, right? Not so fast. Sure, the company is making progress in some respects, but the dire financial facts can’t be denied. In the final analysis, it’s hard to built a convincing argument that Carnival shares will cruise higher in 2022.
What’s Happening With CCL Stock?
By now, CCL stock should at least be fairly close to the pre-pandemic price of $52. Unfortunately, the shares have dropped below $12 now. That’s not even half of the stock’s 52-week high of $30.77.
Still, some folks might dare to go deep-sea diving because the shares are so cheap now. Before you go bottom-fishing, though, be sure to conduct your due diligence on Carnival.
Now, it wouldn’t be fair to say that Carnival is a complete shipwreck of a company. After all, Carnival recently announced that it was the “first major U.S. cruise line with its full fleet back in guest service since the industry’s restart last summer.” So that’s one achievement.
With that, Carnival disclosed that the company had welcomed two million guests since the industry’s restart. That’s a notable milestone, and it certainly weighs in favor of a long position in CCL stock.
Watch Out for Zombies
Thus, buyers have some ammunition for their bullish argument. They could also point out that, in the three months ended Feb. 28, Carnival generated $1.62 billion in revenue. That’s a huge improvement over the $26 million in revenue reported during the year-earlier period.
In light of those stats and the aforementioned two-million-guests milestone, traders might be tempted to grab some CCL stock shares right now. However, there’s a powerful bearish argument to contend with.
A recent Bloomberg article referred to Carnival as a “corporate zombie.” Is this a fair characterization, though? The article suggests that zombie companies aren’t profitable, while the U.S. Securities and Exchange Commission uses the frightening term “economically unviable.”
It’s hard to say whether Carnival is economically viable or not. It’s a fact, however, that Carnival wasn’t profitable in its most recently reported quarter. During that period, the company sustained a $1.89 billion net earnings loss.
What You Can Do Now With CCL Stock
I’ll let you decide for yourself whether Carnival is actually a “zombie” company or not. It’s commendable that Carnival is getting its fleet back in service and welcoming millions of guests. But there’s no denying that the company lacks profitability.
Therefore, it’s not a bad idea to avoid taking a long position in CCL stock now. Investors should continue to monitor Carnival’s bottom-line figures, which will the company will hopefully steer in the right direction later this year.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.