Carnival Corporation: 5 Reasons for ShortingLarge Caps 3 replies 0 likes 0 votes 135 views
So, there's this guy I know who recently made a bold move in the stock market. He decided to short Carnival Corporation & plc (CCL) stock, and he has some interesting reasons behind his decision. Let me share them with you.
Firstly, he pointed out that Carnival has accumulated a monstrous amount of debt over the past five years. Considering the current high interest rate environment, this raised some concerns for him. While Carnival has been able to make timely debt payments so far, the increasing interest expense is starting to weigh on their financials.
Another factor he mentioned is that despite the recent booking momentum in the cruise industry, earnings per share (EPS) estimates for Carnival have been consistently falling. Even if there is an upward revision in the future, he believes that the stock's current valuation is too high for the company's fundamentals.
When it comes to revenue, Carnival and its peers experienced a significant drop during and after the pandemic. While Carnival's revenue has now bounced back to pre-pandemic levels, he is skeptical about the sustainability of this recovery. He questions whether the terms "pent up" demand and "COVID tailwinds" still apply in the current situation.
Dilution is another concern he raised. Looking at Carnival's 5-year chart, it might seem reasonable to expect the stock to reach its previous highs if revenue returns to normal. However, he noted that the number of shares outstanding has nearly doubled during the same period, leading to dilution and potentially impacting the stock's future performance.
Lastly, he highlighted that technically, the stock is overbought. The Relative Strength Index (RSI) for Carnival currently stands at 82, well above the typical overbought level of 70. While the stock has shown strong momentum, he believes that such stocks can experience sharp reversals, especially when the underlying company's fundamentals are not among the strongest.
He finds it difficult to understand the market's enthusiasm for Carnival's stock despite some red flags. He acknowledges that going against the momentum and analyst support is generally not recommended, but he's looking to make a quick profit from his short position.