1 Growth Stock Down 65% to Buy Right Now

The big pullback Carnival Corporation (NYSE: CCL) stock's suffered since 2018 makes enough sense on the surface. The COVID-19 contagion wrecked the leisure cruise industry. So -- like so many other companies at the time -- this one borrowed heavily to survive. Although the pandemic's since faded, it doesn't feel like the economy's ever fully healed. All that debt is also still sitting on Carnival's balance sheet, costing the company money that it wasn't paying out just a few years earlier.

However, Carnival is faring far better than it seems like it should be, despite the backdrop.

The market's starting to see this. Shares are well up from their late-2022 low. This stock's still down 65% from its 2018 high, however, leaving plenty of room for it to keep rising.

Carnival, then and now

Carnival Corporation operates a major cruise line of the same name. It owns a fleet of nearly 100 boats when including its lesser-known brands like Costa, Aida, and Princess. The $36 billion company is on track to do $25 billion worth of business this year, up 16% from last year's top line. Of that, roughly a couple billion will be converted into net income. Sales now exceed Carnival's pre-pandemic totals, although profits haven't quite been fully restored to 2019's levels.

Data source: StockAnalysis.com. Chart by author.

Blame inflation and interest payments, mostly. The company's now dishing out on the order of $400 million in interest payments every quarter, versus one-tenth that amount prior to the pandemic's onset. Operating costs like fuel and payroll are also disproportionately higher for the timeframe.

But don't miss the forest for the trees. Carnival stock is as much of a buy now as it's ever been, if not more so.

The bullish argument holds plenty of water

As strange as it may sound (given the financial strain most households say they're feeling these days), Carnival's business has never been better. Last quarter's revenue of $7.9 billion was not only 14% higher year over year, but record-breaking for any third quarter. Operating income of $2.2 billion was also a record-breaker. Growth on both fronts extended what have become well-established trends.

CCL Revenue (TTM) data by YCharts.

In fact, the only thing holding the company back is a lack of boats. Nearly half of the coming year's capacity has already been booked, while 2026's trips are also already reserved at record-breaking levels. This demand has allowed the company to raise its prices, which people haven't balked at.

What gives?

Take the data at face value. While even higher-earning households are keeping a more careful eye on their spending in this environment, maritime cruises remain an amazingly affordable vacation option. For many people, cruising is a splurge that's worth the cost when the alternative might be taking no trip at all.

Things are only apt to keep getting better. Analysts with JPMorgan believe the leisure cruise industry is on pace to serve 34.7 million passengers this year, topping last year's record of 31.7 million en route to 39.7 million in 2027. That's not a ton of absolute growth, nor is it a massive number of paying customers. It's huge for the leisure cruise business' key players like Carnival, though. It now reports a return of a little more than 10% on any newly invested capital.

The bulk of this capital investment is, of course, the purchase of new ships that will help soak up demand that can't be served now. To this end, there's little doubt that the company will be able to fill up the three ships scheduled for delivery between now and 2028. There's also little doubt that the three additional boats slated for delivery between then and 2031 will fill up quickly.

Increasingly convincing

The $26.6 billion in long-term debt just sitting on Carnival's balance sheet? Sure, that's a legitimate concern. It's costing the company more than a little money on a recurring basis.

Look deeper, though. The leisure cruise outfit is slowly but surely chipping away this debt -- and its quarterly cost --- with the real profits it's producing. And much of any debt that can't yet be retired or eliminated is at least being refinanced at lower interest rates, leveraging the company's recently raised credit ratings from Standard & Poor's and Moody's. Fitch also just initiated coverage of Carnival's debt, grading the company's bonds a respectable BB.

Mostly, Carnival stock is a buy here because it's becoming increasingly clear that its business model still works, and that its pricing power is resilient. It doesn't appear this will change anytime soon, either.

Indeed, after a wobbly 2024, the economy may be headed into better days that generate greater discretionary income. Not only does inflation continue to moderate, but The Conference Board reports that U.S. companies are expanding their 2025 payroll budgets by 3.9% versus this year's 3.8% increase. This will leave more discretionary spending dollars in people's pockets, allowing them to afford a vacation they may not have otherwise taken. Carnival stands ready to be one of the chief beneficiaries of this dynamic.

Just don't wait too long to jump in if you're interested. As the chart of Carnival stock above illustrates, other investors are quickly turning into believers. They're likely keying in on the profit recovery that's dramatically outpacing the company's top-line growth.

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JPMorgan Chase is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase and Moody's. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.