It's been a great morning session for Carnival investors, who saw their shares rise 7.3% to a price of $15.1 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Carnival Is Too Expensive at Current Levels:
Carnival Corporation & plc engages in the provision of leisure travel services in North America, Australia, Europe, Asia, and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.15 and an average price to book (P/B) ratio of 3.11. In contrast, Carnival has a trailing 12 month P/E ratio of 21.3 and a P/B ratio of 2.81.
When we divideCarnival's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.89, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Company's Revenues Are Declining:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $18,881 | $20,825 | $5,595 | $1,908 | $12,168 | $21,593 |
| Operating Margins | 18% | 16% | -158% | -372% | -36% | 9% |
| Net Margins | 17% | 14% | -183% | -498% | -50% | 0% |
| Net Income (M) | $3,152 | $2,990 | -$10,236 | -$9,501 | -$6,093 | -$74 |
| Net Interest Expense (M) | -$194 | -$206 | -$895 | -$1,601 | -$1,609 | -$2,066 |
| Depreciation & Amort. (M) | $2,017 | $2,160 | $2,241 | $2,233 | $2,275 | $2,370 |
| Diluted Shares (M) | 744 | 719 | 710 | 932,669 | 1,171 | 1,300 |
| Earnings Per Share | $4.24 | $4.16 | -$14.41 | -$0.01 | -$5.2 | -$0.06 |
| EPS Growth | n/a | -1.89% | -446.39% | 99.93% | -51900.0% | 98.85% |
| Avg. Price | $57.93 | $46.41 | $18.52 | $21.29 | $15.79 | $15.1 |
| P/E Ratio | 13.66 | 11.16 | -1.29 | -2129.0 | -3.04 | -251.67 |
| CAPEX (M) | $3,749 | $5,429 | $3,620 | $3,607 | $4,940 | $3,284 |
| EV / EBITDA | 9.65 | 8.11 | -4.15 | -4093.5 | -23.2 | 11.05 |
| Total Debt (M) | $9,475 | $11,271 | $23,872 | $30,436 | $34,346 | $30,572 |
| Net Debt / EBITDA | 1.59 | 1.98 | -2.17 | -4.43 | -14.41 | 6.51 |
| Current Ratio | 1.41 | 1.29 | 6.06 | 5.26 | 3.13 | 2.52 |
Carnival's financial statements include several red flags such as slight revenue growth and decreasing reinvestment in the business, weak operating margins with a negative growth trend, and declining EPS growth. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company has an excellent current ratio of 2.52 working in its favor.
