Is Carnival Stock a Buy, Sell, or Hold in 2025?

Shares of Carnival (NYSE: CCL) have rallied to a spectacular 92% gain this year amid a string of better-than-expected quarterly results. Compared to the pandemic-era disruptions, the cruise line giant has converted strong booking activity and higher pricing into an impressive financial comeback story.

Investors have plenty to celebrate with the stock currently trading at a 52-week high. But can this party boat keep delivering positive returns?

Let's discuss what to do with Carnival stock heading into 2025.

The case to buy or hold Carnival stock now

Carnival is benefiting from a cruise industry renaissance with data showing this form of travel and leisure is more popular than ever. More people are taking a cruise for the first time and traveling more often, while willing to pay a premium for that dream vacation.

The setup has been great news for Carnival, which invested heavily to capture the booming demand by adding capacity to break several pre-pandemic records this year. In the last reported third quarter (for the period ended Sept. 30), Carnival held $6.8 billion in customer deposits for future cruises, up $500 million from the prior-year quarter and 39% higher than Q3 2019.

The performance metric that stands out is Carnival's guidance for 2024 net yield (a fancy industry term measuring the average revenue earned per capacity per day). It's projected to climb by 10.4% from 2023, even as the per-day adjusted cruise cost increases by just 3.4%. That spread highlights the company's success in hiking prices while controlling expenses.

Steps to modernize the fleet with bigger and more feature-packed ships have translated into a more premium product generating higher profitability margins.

Image source: Getty Images.

The company forecasts 2024 adjusted EBITDA of $6 billion, representing a 40% increase from 2023. The target for full-year adjusted earnings per share of $1.33 is set to turn consistently positive from the $0 result in 2023.

Management is optimistic about 2025, as Carnival's "Celebration Key" -- the newest exclusive resort-style destination in the Caribbean -- begins contributing higher yields.

Investors who are confident Carnival remains in the early stages of a significant long-term growth opportunity have a good reason to own the stock and expect more upside to the rally.

The case to sell Carnival stock now

As favorable as the outlook for Carnival may appear, it's always important to take a critical look and reflect on what could go wrong.

One challenge facing Carnival stock today is that because 2024 has been so strong, the company will have a tough act to follow. Even with good visibility on 2025 sailings, the market will begin to shift its focus on trends for later years with some uncertainty on how yields and profitability margins evolve.

The cruise industry remains highly competitive with operators like Royal Caribbean and Norwegian Cruise Lines attempting to consolidate market share at various price points and demographics.

With capacity being added across the industry, Carnival's pricing power will be tested and could even face a slowdown during a new promotional cycle that limits earnings. Another risk to consider is the possibility that macroeconomic conditions deteriorate through a weaker labor market and a slowdown in consumer spending would also pressure Carnival's results.

Investors who are skeptical about whether Carnival can sail through a storm could find a reason to disembark and sell the stock now.

Decision time for Carnival stock

I believe Carnival is buy-worthy with a good chance the share price will be higher by this time next year.

What I like about the stock is its compelling valuation, trading at just 9.4 times its 2024 consensus EBITDA as an enterprise-value-to-forward-EBITDA ratio. Notably, this level represents a discount to Norwegian at 9.8 and Royal Caribbean at 13.1.

CCL EV to EBITDA (Forward) data by YCharts

In my view, shares of Carnival still offer compelling value with room to capture a valuation expansion relative to peers as its financial position further improves.

The data suggests Carnival finally found the right coordinates to sustain profitable growth and is now well-positioned to reward shareholders. For investors with a long-term time horizon, shares of Carnival can work within a diversified portfolio.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.