Carnival's Huge Swing

Carnival (NYSE: ) stock has been beaten down over the past year. The stock has fallen 55% percent from its 52 week high. The stock price drop over the past 3 years is even more drastic.



Fear-Based Opportunity?

The coronavirus has struct fear in the hearts of investors but the valuation today is a good value. Compare the current market capitalization of 21.5B to the shareholder equity on the balance sheet of 25.4B. That means you can buy this stock for 84 cents on the , if, you believe the book values. But there are more reasons to buy CCL.





CCL Will Remain A Giant

Carnival is not going anywhere. It is an industry giant. With 47% market share based on passenger count, CCL is larger than its next three rivals combined. Royal Caribbean Cruises (NYSE: ), Norwegian Cruise Line Holdings (NYSE: ), and MSC Cruises have a combined 43% of the market by passenger count. (Source: wiki 2018 data)



The industry has an extremely long lead time and high capital expenditures. These barriers to entry mean that their won't be any new competition. Just like the 7+ year backlog that Boeing (NYSE:NYSE: ) and Airbus carry, Fincantieri shipyard has a 6-year backlog. That means a cruise ship ordered today will be ready for operations in 6 years. Given that fact, Carnival Cruise Lines isn't going anywhere and they can’t be challenged. It would take too long and it’s just not going to change.



Well Capitalized

Compare Carnival's debt to equity ratio to its main rivals, NCLH or RCL.

CCL 0.38 Debt/Equity

RCL 0.74 Debt/Equity

NCLH 0.97 Debt/Equity

(Based on December 2019 Financials)



So CCL is the best capitalized in the industry. I would be more nervous investing in RCL or NCLH given their high amounts of leverage. Comparatively, CCL has a lot of breathing room.



Coronavirus Threats Remain

Yes, coronavirus is scary. CCL announced multiple trip cancellations and recent headlines are very bad for the brand. This is the reason why the stock has underperformed so much in the past month. The coronavirus will have a large impact on this year's revenue. The entire industry will most likely report a loss for 2020. There is more pain to come.



Dollar Cost Averaging

Coronavirus will be a big drag on revenue and profitability in the short term but today you are getting a serious discount on the company. If the stock continues to fall, dollar cost averaging your position and continue to buy that sale. Buy a dollar for 80 cents, 75 cents, 70 cents. It’s a value stock at today's bargain rate.