Is Carnival Corp (CCL) Set to Underperform? Analyzing the Factors Limiting Growth

Understanding the Barriers to Outperformance for Carnival Corp

Long-established in the Travel & Leisure industry, Carnival Corp (CCL, Financial) has enjoyed a stellar reputation. It has recently witnessed a daily gain of 3.21%, juxtaposed with a three-month change of -6.87%. However, fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Carnival Corp.

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What Is the GF Score?

The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.

Based on the above method, GuruFocus assigned Carnival Corp a GF Score of 64 out of 100, which signals poor future outperformance potential.

Understanding Carnival Corp's Business

Carnival Corp, with a market cap of $19.72 billion and sales of $20.04 billion, is the largest global cruise company, boasting a diverse portfolio of brands. These include Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. The company also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival's brands attracted about 13 million guests in 2019, prior to COVID-19, a level it should reach again in 2023. With an operating margin of 2.19%, Carnival Corp's financial health is a critical aspect for investors to consider.

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Financial Strength Breakdown

Carnival Corp's financial strength indicators present some concerning insights about the company's balance sheet health. With an interest coverage ratio of 0.21, Carnival Corp is positioned worse than 97.47% of 594 companies in the Travel & Leisure industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Score is just 0.55, indicating a risk of financial distress, and its low cash-to-debt ratio at 0.09 suggests difficulties in managing debt levels. Furthermore, a debt-to-equity ratio of 4.69 and a debt-to-Ebitda ratio of 11.8 are both concerning, indicating an over-reliance on borrowing and vulnerability to market fluctuations.

Growth Prospects

A lack of significant growth is another area where Carnival Corp seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by an average of 30% per year over the past three years, which is worse than 89.34% of 769 companies in the Travel & Leisure industry. Additionally, Carnival Corp's predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.

Next Steps

Considering Carnival Corp's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. Investors should be cautious and consider these factors when evaluating the company's future prospects. For those seeking more robust investment opportunities, GuruFocus Premium members can explore companies with strong GF Scores using the following screener link: GF Score Screen.

Will Carnival Corp navigate through these turbulent financial waters, or will the company's current challenges capsize its historical performance? Only time will tell, but informed investors will keep a watchful eye on these critical indicators.

This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure