Carnival has been treading water for the past six months, recording a small return of 3.5% while holding steady at $26.69. The stock also fell short of the S&P 500’s 9.1% gain during that period.
Is now the time to buy Carnival, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think Carnival Will Underperform?
We don't have much confidence in Carnival. Here are three reasons you should be careful with CCL and a stock we'd rather own.
1. Weak Growth in Passenger Cruise Days Points to Soft Demand
Revenue growth can be broken down into changes in price and volume (for companies like Carnival, our preferred volume metric is passenger cruise days). While both are important, the latter is the most critical to analyze because prices have a ceiling.
Carnival’s passenger cruise days came in at 24.4 million in the latest quarter, and over the last two years, averaged 1.2% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability. 
2. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Carnival has shown poor cash profitability relative to peers over the last two years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 9.5%, below what we’d expect for a consumer discretionary business.
3. Previous Growth Initiatives Haven’t Paid Off Yet
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Carnival historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.1%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.
Final Judgment
Carnival doesn’t pass our quality test. With its shares underperforming the market lately, the stock trades at 12× forward P/E (or $26.69 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are more exciting stocks to buy at the moment. We’d suggest looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of Carnival
WHILE YOU’RE HERE: Top 9 Market-Beating Stocks. The best stocks don't just beat the market once. They do it again. And again. Robust revenue growth, rising free cash flow, returns on capital that leave their competition in the dust. The market has already rewarded these businesses.
But our AI platform says the party isn't over. Find out which 9 stocks made the cut this week - FREE. Get Our Top 9 Market-Beating Stocks for Free HERE.
Stocks that have made our list include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.
