Carnival share price hits turbulence: is it a good value stock to buy?

Carnival share price suffered a harsh reversal this week, falling to the lowest level since June 24. It has dived by 24.35% from its highest point this year, erasing billions of dollars in value as its market capitalization dropped from the year-to-date high of $42.3 billion in September to $32 billion today.

The ongoing Carnival stock crash aligned with the performance of other companies in the industry. Royal Caribbean’s stock price dropped by 3%, bringing its market capitalization to $69.7 billion, while Norwegian Cruise fell by 2%. Viking Holdings stock was largely unchanged.

Why Carnival share price dropped 

Carnival stock price retreated after some notable industry experts delivered a cautious outlook about the industry. In a note, a Barclays analyst said that Carnival’s management had conveyed a cautious tone during a recent trip to the AIDAdiva vessel.

Precisely, the management is concerned about the rising capacity in the Caribbean, where top companies like Carnival, Norwegian, and Royal Caribbean are seeking to gain market share.

Carnival stock also dropped amid negative headlines about a recent incident in which Anna Kepner, a teenager, was found dead in her room earlier this month. Authorities now believe that the teen was killed by her stepbrother. Still, while this report is bad news for the company, chances of it having a lasting impact on its business are slim.

Carnival’s business is doing well

Still, fundamentals suggest that the company’s business is doing well, a trend that may continue in the coming months as demand for cruising continues and its valuation continues to be friendly.

Demand for cruising is rising in the United States, led by Gen Z and millennials, with most travelers being less than 46 years old. This is a sharp contrast to what happened before the pandemic when most of the travelers were retirees. Most importantly, these investors are spending and willing to spend more money.

The most recent results showed that Carnival’s net yield rose to 4.6% in the last quarter, higher than its guidance of 3.5%. Most importantly, the cost of its cruise was lower than expected, rising by 5%. Its guidance was a 7% increase.

Meanwhile, the company continued to boost its guidance, raising it for the third time this year. For example, they boosted the full-year net yield to 5.3% and adjusted EBITDA guidance to $7.1 billion, higher than the $6.6 billion in December.

Also, the management’s net income guidance of $2.9 billion was higher than $2.3 billion in December, a sign that the management expects the growth to accelerate.

The company is able to provide relatively accurate guidance because of its  soaring customer deposits and forward bookings. Its customer deposits jumped to $7.1 billion last quarter to $6.3 billion in the same period last year.

Carnival stock has more bullish catalysts, including the growth of its Celebration Key, a destination that has attracted over 500k visitors, a figure that will jump to 3 million next year. It has also expanded its business to China, while its valuation multiples are not all that extreme.

Carnival stock price technical analysis 

The daily timeframe chart shows that the Carnival stock price peaked at $32.82 in August, forming a small double-top pattern.

The stock has now plunged and is about to form a death cross pattern as the spread of 50-day and 200-day Weighted Moving Averages (WMA) has narrowed.

CCL stock price has moved below the important support level at $28.75, its highest point in January this year.

Therefore, the most likely scenario is where the ongoing shakeout continues for a while and then the stock will rebound and possibly retest the year-to-date high of $32.8.

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