This Surprising Cruise Line Stock Is Beating the Market in 2025. Time to Buy?

Key Points

• Carnival is set to match record bookings, as it fills available cabins beyond 100% capacity.

• Its debt burden from the pandemic continues to weigh on the company.

• But total debt levels continue to fall.

• 10 stocks we like better than Carnival Corp. ›

Carnival Corporation (NYSE: CCL) is often overlooked, even amid a dramatic recovery. Despite it being the largest cruise line, investors may recall the pandemic when cruise line stocks suffered amid the shutdown. An uncertain economy could also ultimately undermine its prosperity.

Thus, it may come as a surprise to investors that, so far this year, Carnival has outperformed the S&P 500. The question is whether investors should take this as a buy signal, or let Carnival stock sail by.

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Image source: Carnival Corporation.

The state of Carnival Corporation

At first glance, the current state of Carnival could almost make investors forget the pandemic ever happened.

In an industry that defines 100% capacity as two people in every cabin, Carnival reports occupancy levels of 104%. To meet this growing demand, it plans to build an additional two ships by 2028. It probably needs these ships, since Carnival is on track to match this year's record bookings again in 2026. This means it does not have to discount aggressively to fill its ships, a factor that will boost revenue and profits.

However, investors don't have to venture into deep waters to find the risks with Carnival stock. Carnival has so far prospered despite a sluggish economy, but if the economic woes start to negatively affect bookings, that could bode poorly for the company's financials.

Moreover, for all its prosperity, the company incurred a massive amount of debt during the pandemic shutdowns so it could remain in business. It ended the previous quarter with just over $27 billion in total debt. While that has decreased significantly, it remains a heavy burden for a company with a book value of $10 billion.

How Carnival's financials have fared

Amidst the economic and debt-related fears, the record bookings and high occupancy levels have strengthened its financial performance. In the first half of fiscal 2025 (ended May 31), revenue of just over $12 billion rose by 8%, compared to the same period in fiscal 2024.

During that time, Carnival limited cost and expense growth to 3%. Consequently, it reported a net income of $486 million for the first two quarters of the fiscal year, well above the $123 million loss for the same timeframe one year ago.

Investors should also note the improvement in its debt situation. The company paid down just over $2 billion in debt, closely approximating the amount of debt maturing over that period. That means it can retire debt as it comes due.

Plus, Carnival earned a profit as it reduced interest expenses by 22% and incurred higher debt extinguishment expenses. Such results show that Carnival has successfully managed its debt burden without directly affecting its growth.

This seems to have boosted investor confidence, as evidenced by the rise in the stock price of nearly 70% over the last year. Since the stock sells at a 58% discount from its all-time high in 2018, this situation implies that Carnival stock could still have considerable upside.

Furthermore, at just 17 times earnings, its stock is cheaper than its archrival Royal Caribbean, which trades at a price-to-earnings (P/E) ratio of 24. Such conditions indicate that investors can buy now and still benefit from the dramatic recovery of Carnival and its stock.

Investing in Carnival stock

Considering the state of Carnival stock, investors can likely still benefit by buying it now.

Admittedly, Carnival is still years away from reducing the debt created by the pandemic, and an economic downturn could interrupt the dramatic recovery of its business, at least for a time.

Nonetheless, with record bookings and ships filled beyond capacity, Carnival has prospered to the point that it can retire debt as it comes due. Moreover, the debt has not stopped it from expanding its fleet, which should lead to higher profits and more debt reduction over time.

Finally, despite the stock price increase, the 17 P/E ratio suggests that the stock is relatively inexpensive. Thus, new investors likely still have time to buy Carnival stock as it seeks to return to all-time highs.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.