The Carnival share price is booming! Should I invest in the company today?

Cruise ship company Carnival (LSE:CCL) has been the highest riser in the FTSE 250 over the last month. During that time, the Carnival share price has been boosted just short of 50% to today’s price of 1,765p. 

Like many travel and leisure stocks, the shares took a beating in the stock market crash which followed the onset of Covid-19. Despite its short-term gains, the Carnival share price has lost 24% of its value over the last 12 months.

With the cruise holiday industry brought to a virtual standstill by global pandemic restrictions, the shares have been buoyed by the rollout of the vaccine program. So where do I see Carnival shares headed over the next few years?

Why is the Carnival share price rising?

For me, the main reason that the shares have seen such a significant recovery recently is simply due to developments in the fight against Covid-19. As Boris Johnson announced tentative measures to ease the lockdown in the UK, investors appear to be optimistic that international travel will be allowed to resume on a larger scale at some point this year.

Carnival has said it hopes to begin operating its cruises again this year. I think realistically it will be closer to 2022 before cruises will be able to operate at something close to normal trading conditions.

As well as that optimism, Carnival also announced last month it would be launching a $1bn share offering of its common stock. The company said it would be using its proceeds from the stock sale for “general corporate purposes”.

I’m not particularly convinced by that statement, although the market appears to have responded well to the stock offering. If I was a shareholder I would want to hear more information about what those “purposes” are.

Struggling finances

As is to be expected, Carnival’s balance sheet has taken quite a battering over the last year. At the beginning of the year the company said its net loss for the most recent quarter was £1.6bn.

While that is clearly an unsustainable figure in the long term, the company added it burnt through slightly less money than expected in the final quarter.

By the end of 2020, Carnival said it had $9.5bn of cash and cash equivalents. It will need to use some of this and perhaps extend credit agreements to see it through 2021. 

While I do see travel and leisure stocks turning the corner this year for the most part, I think the cruise industry still has a way to go. With an older clientele and thousands of holidaymakers canned into one vessel, there could be plenty of difficult days still ahead for the business.

The company has said bookings for the second half of the year are within its historical range. Bookings for the first half of 2022 are higher than the same period in 2019. While that may be true, I fear further cancellations may significantly affect those numbers. I still see too much risk attached to the Carnival share price, and won’t be buying the shares right now.