Carnival Stock Analysis

This is the worst start of the markets in years with the S&P 500 $SPX500 falling by 7% triggering a Circuit Breaker. The markets only opened at 9:49 AM EST. The market has shown a slight recovery since then being down by only about 5.5% right now. The reason for this crash is no longer the Coronavirus. It is a crash in oil prices $OIL after Russia and Saudi Arabia decided to act like small kids. Nobody knows what will happen in the long-term or even short-term to oil prices. These low prices are unsustainable for both countries as their economies are highly dependent on oil. I don't want to speculate but I'm taking opportunity of the crash to invest. I have two oil companies in my portfolio, Parsley Energy $PE and Concho Resources $CXO both of which are considerable down today. They are protected by derivatives (at least for this year) so I invested in both companies. I also took the opportunity to invest in several companies today. Stocks are still expensive so look for individual companies instead of jumping and buying the whole index.


Carnival Stock Analysis



Carnival stock $CCL is down by more than 60% since it peaked in January 2018. Last week alone, it lost over 14% in a single day.


Carnival Cruises is the largest cruise ship operator in the world with about 45% of market share. They have two main competitors, Royal Caribbean $$RCL and Norwegian Cruise Line $NCLH. Among these three, Carnival has the most diversified business but it also means that they have the lowest margins and they are the one growing the slowest. Carnival Cruise operates through different brands such as Costa and Princess Cruises.


Carnival has a moat since it is hard for someone to enter this industry and compete with them. Even if their revenues are growing at a slow rate, over the long-term it will still grow.


The only problem I see with the numbers is on the cash flow statement. They have a very high capital expenditure. There are two types of capital expenditures: Capex for growth and capex to maintain current operations. Warren Buffett says that we need to focus on the latter when calculating the intrinsic value of a company. The capex is high because they are investing in new ships. Unfortunately, they didn't plan for a virus outbreak and for one of their ships to be quarantined. It is happening at a bad time.


If you think 10 years or 20 years from now, people will still go on cruises. It is a good investment for the long-term. But for me, it is still expensive. This is a slow growing company. If in case, there is a recession in the coming years, this stock will underperform. It is not worth it investing right now. It is just not cheap enough for the limited reward. I'm alway looking for asymmetric risk-reward, low risk with high reward. Carnival Cruise right now is high risk, low reward.


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https://www.youtube.com/watch?v=IXyUQfDfZWA&list=UUPO3uUyoXSaFWG-Ldq1mqEQ



Here's the full analysis of Carnival:

https://ishfaaqpeerally.teachable.com/courses/662813/lectures/14450270


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