Carnival (CCL 0.61%) (CUK 0.56%) stock has moved on from its one-time meme status and has beat the market squarely for two years in a row -- up 130% in 2023 and following that up with a 34% gain in 2024.
The cruise industry is back up and running, and as the leading cruise operator, Carnival has the most to gain. It's making all the right moves to win back customers and recharge its business, but there are some still residual challenges left over from its taking on a huge debt early in the pandemic.
Has Carnival's luck run out at this point? Let's see if investors should avoid Carnival in 2025 after its two-year run-up or if there's still time to buy in.
Where customers are embarking today
Carnival is starting 2025 in its best-ever booked position, coming off a year full of record performance. Revenue was a record $25 billion for fiscal 2024 (ended Nov. 30), and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was a record $6.1 billion. Operating income increased 80% over last year to reach a record $3.6 billion, and cumulative advanced bookings for 2025 were at all-time highs for both occupancy and price.
Image source: Carnival
Carnival outperformed its guidance on every metric fueled by high demand, and it's not slowing down. It's about two-thirds booked through 2025, and it's already taking record bookings into 2026. It's at historical highs for price and occupancy, and it's booked through the next four quarters at higher prices than the previous four quarters.
There are many reasons to be optimistic as the new year starts. Moderating inflation and lower interest rates should lead to higher spending, especially on luxury products like cruise tickets.
Carnival is investing in many initiatives to attract customers and offer a premier experience. It launched three new ships last year and has several more on order over the next few years. It's focusing on digital advertising to drive interest, and it's making more pre-cruise onboard sales. It's also opening exclusive Caribbean destinations such as Celebration Key, what it calls "the ultimate beach day," set to launch in the back half of the year.
The final destination
Not everything is perfect in Carnival land, although it's getting close. It reported its first annual net profit for 2024 since the pandemic, and net income is one metric where it's still rebounding. Carnival reported $1.9 billion in net income in 2024, up from a $74 million loss in 2023.
It's generating positive operating and free cash flow, and it's balancing investing in new opportunities with paying down its high debt. That debt is the biggest obstacle to overcome right now, the last piece of the puzzle that would make Carnival a reliable winner.
Carnival stock was sagging for much of the year, but it got a new lease on life after the Federal Reserve began to lower interest rates. Not only should that lead to increased interest in Carnival's cruises, but it should also have a major impact on Carnival's ability to pay off the debt in a reasonable time frame. The fear, and the risk, is that demand will wane before Carnival can amply pay off the debt. It's already made great strides, and the debt is about $8 billion off of its peak. It still has about $27 billion, or around $17 billion more than historical, pre-pandemic levels, but its debt-to-adjusted EBITDA ratio has declined from 6.7 to 3.8.
Despite its strong performance and high stock gains over the past two years, Carnival is still trading at a cheap price. It trades at only 10.5 times forward one-year earnings and 1.2 times trailing-12-month sales. As debt goes down and continues to demonstrate solid performance, the stock should keep rising, and it should also be able to handle a higher valuation.
Everything is going right for Carnival right now. Most of the year is booked out at higher prices than last year, 2026 is going even better, debt is going down, and the price is right. There's certainly risk, but I can see Carnival easily beating the market again this year.
