Is Carnival's Stock Overvalued Or Undervalued?

Carnival Corp CCL shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 5.1%.

Carnival stock has had a wild ride since the 2020 shutdowns, but investors may be wondering whether there’s any value in Carnival shares after its 2021 pullback.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is at about 28.7, nearly double its long-term average of 15.9. Carnival doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Carnival reported a $2-billion net loss.

Related Link: Is Rocket Companies' Stock Overvalued Or Undervalued?

Growth: Looking ahead to the next four quarters, the S&P 500's forward PE ratio looks much more reasonable at just 20.8. Unfortunately, analysts are not expecting Carnival to turn a profit over the next four quarters. The current consensus earnings per share estimate for Carnival for 2022 is a per-share loss of 25 cents. Carnival’s consumer discretionary sector peers are averaging a 31.7 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process.

The S&P 500’s overall PEG is currently about 1.0. Once again, without positive earnings, Carnival doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.11, well above its long-term average of 1.63. Carnival’s PS ratio is 33.6, more than 10 times higher than the S&P 500 average as a whole. Carnival's PS ratio is also up 416.4% over the last five years, suggesting the stock is priced at the high end of its historical valuation range.

Finally, Wall Street analysts see value in Carnival stock over the next 12 months. The average analyst price target among the 16 analysts covering Carnival is $24.75, suggesting 16.6% upside from current levels.

The Verdict: At its current price, Carnival stock appears to be overvalued based on a sampling of common fundamental valuation metrics.