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Even though the FTSE 250 is marginally down over the past month, one growth share in the index has jumped almost 30% over the same period. The clear divergence not only makes me interested in seeing what drove the move, but also could provide me with a solid stock to buy to give my portfolio a boost to end the year.
The brief backstory
The stock I’m referring to is Carnival (LSE:CCL). Investors will remember that the global cruise line operator was hit exceptionally hard during the pandemic. The confined ship spaces and travel lockdowns meant that revenue dried up almost overnight. As a result, it had to take on significant debt to allow it to survive.
Even though restrictions eased and business was able to resume, a lot of people (myself included) were cautious about buying the stock. While it looked very cheap in 2022, I was worried that the company might not ever get back to the pre-pandemic level.
It’s true that the share price is still down 53% over the past five years. This shows that the pandemic damage hasn’t been erased. But there does appear to be a change in the wind, with the stock up 55% in the past year, including this recent spike.
The short-term pop
At the end of September, the business released a very strong set of quarterly results. The CEO was incredibly upbeat. He noted that the business “delivered a phenomenal third quarter, breaking operational records and outperforming across the board”.
Net income was $1.7bn, a jump of $662m from the same quarter last year. Q3 revenues hit an all-time high of $7.9bn, showing that consumer demand is certainly there. Carnival is benefitting from having higher ticket prices but still selling out the cruises, a perfect mix that’s shown via the financial results.
The Q3 figures mean that it raised the full-year 2024 adjusted EBITDA guidance to approximately $6bn. If realised, this would be up over 40% compared to 2023.
Naturally, the share price reacted favourably to these results on the day. Yet it’s also telling that the stock has continued to jump since then. This shows me that there’s momentum behind the move, indicating that it could keep pushing higher in the months to come.
The long-term future
I’ve put off buying Carnival shares for a long time as I didn’t feel comfortable. But the recent results and share price move give me a lot more confidence to consider getting involved.
Of course, an ongoing risk is the debt pile. Long-term debt currently stands at $26.6bn, only marginally lower than the $28.5bn from last year. I think this needs to be a key focus, as continued high interest rates makes the repayment costs chunky.
Although I’m not going to buy right now, my opinion of the stock has completely changed. I think there’s serious growth potential ahead, but I want to wait for a while to ensure this isn’t a flash-in-the-pan move.
