2 Reasons to Buy Carnival Stock Like There's No Tomorrow

The stock price has remained well below its pre-coronavirus pandemic peak, at least partly thanks to a heavy debt load

But that factor could change over the next few years, which might make some investors interested in buying the stock there's no tomorrow

Here's why that could be a good idea, and why it might not be

What does Carnival do

Carnival operates cruise lines, including some of the best-known cruise brands in the world

The list includes Carnival, Cunard, Costa, Holland America, and Princess, among others

There are really two different es in one here, when you look at the big picture

Image source: Getty Images

The first is selling cruises

That includes a trip on a boat, food, and some entertainment

But there's a second in selling add-ons to cruise customers

The list of additional items that can be purchased spans a broad spectrum

The shops on the boat sell clothing, jewelry, and other items

There are usually specialty dining restaurants on the ship that cost more

And there are experiences both on the ship and off that can be bought, from bingo to water sports

This is a very big and complex, but the all-in cost of a cruise is attractive relative to other vacation options

That's one of the reasons why Carnival's is doing so well right now

In the second quarter, it reported record revenue, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), and operating income

The company also has an all-time-high customer deposit level, which suggests that the strong results will continue into the future

That's the first reason to buy Carnival there's no tomorrow -- its is performing well, and that strength should continue for the immediate future

The second reason is that Carnival is shifting from in new ships to paying down debt, which largely helped to fund new ships (in addition to helping the company navigate the coronavirus pandemic)

Leverage has been a major headwind for Carnival, so strengthening its balance sheet should be seen as a positive among investors

Lower debt could easily lead to a higher valuation

Not every investor should be buying Carnival So there are a couple of compelling reasons to buy Carnival, given that its stock price remains well below its pre-coronavirus pandemic highs

That was the point at which the company's debt levels really took off

But there's an important nuance to this story that might cause some investors to hold off on buying this stock

Part of the growth Carnival has experienced of late came from the recovery ing the basically being shut down during the pandemic's height

Another part of the growth has resulted from in new ships

Those two stories are largely played out at this point

So while Carnival's results are strong, they could start to flatline

While they are ly to remain at a high level, compared to the recent past, a lack of growth will bably turn some investors off

Then there's the debt, which remains quite high

Paying it down will be a positive, but the rate of debt reduction will be important to monitor

It will bably take a couple of quarters to get a sense for what management is really capable of doing on this front, now that it has shifted more toward fiscal responsibility

Waiting another quarter or two bably won't hurt more conservative investors

A sea change is still underway There's no question, Carnival's is operating at a high level today

It's also working on the important task of debt reduction

Those two facts support buying the stock, perhaps aggressively

However, it's important to keep in mind that paying down debt is coming at a time when growth could hit a plateau

And while debt reduction is good, it isn't the same thing as having a low level of debt

Some investors may want to remain on the sidelines here a little longer

Reuben Gregg Brewer has no position in any of the stocks mentioned

The Motley Fool recommends Carnival Corp

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