In early 2021, when optimism over vaccines was at its peak, it was assumed that Carnival (NYSE:CCL) stock could be a good investment this year.

CCL stock rose more than 50% early in 2021, from about $20/share to as high as $31 by June. Since then, the going has been rougher. Carnival opened Nov. 15 at about $22.50.

Chastened, banks like Citigroup (NYSE:C) are dropping their price targets. The average price target at Tipranks is a hold, with two of nine saying sell, one with a target of $18.30. 

Obviously, the market was wrong about Carnival in the spring. Could it be wrong about it again?

The Bull Case for CCL Stock

The cruising business is picking up. August quarter revenue was 10 times what it was for the May quarter. Analysts expect nearly $1.5 billion in revenue for the November quarter, when that is reported on Dec. 30. Losses, which were over $2.8 billion a year ago, might be half that. Before the pandemic, Carnival quarterly revenue averaged $5 billion.

The trend is looking up. Ships are returning to ports like Tampa for the first time in two years. Charleston, South Carolina, should see its first cruise ships in January.

There’s more growth coming. Sailings to Hawaii from California may begin early next year. Carnival is still launching $1 billion ships. An 111-day cruise around the world by Carnival’s Princess line has been set for January 2024.

In addition to Princess and Carnival, the company also owns Europe’s Costa line, the food-oriented Holland America line, the luxury Seabourn line, and Cunard, originally a trans-Atlantic transport line.  Each has its own niche and target market, taking advantage of changing tastes. Carnival is by far the largest cruise company.

The Bear Case

The bear case on Carnival comes down to one word: debt.

Carnival took on enormous debt to survive the pandemic. Since the company is technically based outside the U.S., it was ineligible for the Trump Administration’s debt forgiveness. Some went out at interest rates over 10%.

The worst of the debt was later refinanced at lower rates. But as of August, Carnival still had $28 billion in long-term debt on the books. Before the pandemic, Carnival stock paid regular dividends, as much as 50 cents/share. Those days look far away now.

The company’s dances with debt are no longer seen as positive. To get lower rates, Carnival has to offer extended terms. Management calls recent sales “clearing the runway.”

The latest estimate on when Carnival will have positive free cash flow is the middle of 2022. The profitable shore gets further away.

If you’re bullish on Carnival, the best way to profit may be through its bonds. There the price has been steady and the yield is attractive.

The Bottom Line

Because Carnival is the biggest cruise line it’s also the one most burdened by debt. I have written about this before. I called Carnival a financial drama on the high seas, both scary and dangerous.

If you want to get in on cruising profits, I have suggested you consider options, where the potential reward is great and the risk manageable.

Because the whole industry is impacted by the pandemic, you also might consider one of Carnival’s smaller rivals, which are less burdened by debt. Royal Caribbean (NYSE:RCL), for instance, is now selling for more than it did five years ago, although it’s still 30% below its pre-pandemic level. Profits seem closer there. That’s where I want to be. Debt means Carnival gains still seem a mirage from here.

On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories https://www.amazon.com/Bridget-OFlynn-Virus-COVID-19-Pandemic-ebook/dp/B09K8PSQC8/ at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.