On Aug. 5, cruise stocks wavered on news that they would again extend their no-sail date through October. This hit shares of Carnival (NYSE:CCL), Royal Caribbean (NYSE:RCL) and Norwegian Cruise Line (NYSE:NCLH). Fortunately for investors, Carnival stock managed to stabilize for the rest of the week. Source: FlickrThe problem is, obviously, that without cruises there isn't any real revenue. Without revenue, there's no way to prevent these companies from seeing a bleed in cash flow, as certain costs continue without any business to offset them.InvestorPlace - Stock Market News, Stock Advice & Trading TipsWhile docking the ships is one way to keep costs down, there's still maintenance, insurance and payroll to keep up with. The reason Carnival stock and others were hit so hard is because investors were worried about liquidity. * 7 Travel Stocks to Buy Banking On Pent-Up DemandThat concern was not limited to the cruise industry, but it was front and center with this group for a reason. Carnival cleared up those concerns with a stock offering and a bond deal to raise cash earlier this year. Still, concerns linger and delays continue. Sailing Delay Puts Salt in the WoundFrom the Cruise Lines International Association: "We believe it is prudent at this time to voluntarily extend the suspension of U.S. ocean-going cruise operations to Oct. 31."That is a risk that investors have been well aware of since the coronavirus sell-off hammered this group. However, as cases continue to soar and stay at elevated levels, it creates a lingering concern of just how long this delay will last.It's likely that the delay will be lifted before it's completely safe to sail again. In that instance, believe it or not, there will be people who line up to board these ships. We know that based on how well Carnival's bookings were for August a few months ago, when the company was hoping it would be back to sailing this month. While the die-hard vacationers will be back on ship as soon as they can, there are many customers that won't consider cruises for a while. The added uncertainty related to the cruise delay creates more concern for investors. Will this group recover? Of course it will. Someday Covid-19 will be behind us and the world will move forward with what it was doing before. Sailing and vacationing aren't going to be excluded from our so-called "new world." However, buying a stock in the hope that it will someday recover is not a good enough catalyst for me. There's too much uncertainty, not enough business and too much cash burn here for me to be all that interested. Particularly when there are companies that are seeing accelerating growth, sustainable momentum and have stocks that are in strong uptrends. Trading Carnival Stock Click to EnlargeSource: Chart courtesy of StockCharts.comWhen Carnival reported its preliminary earnings report in mid-June, the results were not pretty. Revenue fell more than 85% and the company lost $4.4 billion. To be clear, I don't think Carnival is facing a liquidity situation. While the cash burn continues, it did take steps to bolster its liquidity. As of the end of May, the company had $7.6 billion in total liquidity, while estimating cash burn for the second half of 2020 at $650 million. I think Carnival will survive. However, it could be a long time before it thrives -- and those are the stocks I want to own. That observation is clear in the way the stock has been trading, too. Carnival stock gave us a nice double-bottom in March and April, before springing higher. After topping near $25 in June though, shares have fallen more than 40% as they trend lower. What's unclear is whether Carnival stock will rotate higher and reclaim several key areas -- like the 20- and 50-day moving averages -- or trade below the current August low at $12.83 and put the May low in play at $11. Keep an eye on these levels moving forward: $12.83 then $11 on the downside and the 20- and 50-day moving averages on the upside.Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities. More From InvestorPlace * Why Everyone Is Investing in 5G All WRONG * America's 1 Stock Picker Reveals His Next 1,000% Winner * Revolutionary Tech Behind 5G Rollout Is Being Pioneered By This 1 Company * Radical New Battery Could Dismantle Oil Markets The post Could Carnival Stock Retest Lows as Sailings Get Delayed?Â appeared first on InvestorPlace.
The leisure industry's quarterly results this earnings season are likely to reflect the impact of the coronavirus pandemic.
Many stocks hammered by the novel coronavirus have bounced back, but not names like Carnival Cruise Lines (NYSE:CCL). Investors may be willing to take a gamble with airlines, but CCL stock just makes people nervous.Source: Ruth Peterkin / Shutterstock.com No surprises here. While airlines are slowly climbing back from their lows, cruise ships remain mothballed. With no-sail orders extended to Oct 31, cash burn is set to continue for Carnival, as well as for its rivals Royal Caribbean (NYSE:RCL), and Norwegian Cruise Line Holdings (NYSE:NCLH).So, what does this mean for the industry's largest operator? At first glance, you may think being size equals strength. Yet, as I wrote back in June, this may not be the strongest cruise stock out there.InvestorPlace - Stock Market News, Stock Advice & Trading TipsWhy? For starters, Royal Caribbean may be smaller, but it could recover much faster. Also, despite its size, Carnival may be behind its rivals in terms of liquidity and balance sheet strength. * 7 Travel Stocks to Buy Banking On Pent-Up Demand And, with the odds favoring a "return to normal" much further on the horizon for cruise lines compared to other hard-hit industries, why buy CCL stock, or any cruise name, now? As the situation continues to be tough, you may have the opportunity to enter a position at much lower prices.With this in mind, let's dive in and see why it's best to stay on the sidelines for now. Riding Out the Storm With CCL StockAs InvestorPlace's Mark Hake discussed Aug 4, no-sail orders may continue to be extended until there's a coronavirus vaccine. In other words, it probably won't be until early 2021 at the earliest that cruise lines can even think about "returning to normal."In the meantime, the heavy cash burn we've seen so far shall continue. And, how much is Carnival burning through each month? Previously, the company projected $650 million per month in cash burn through the second half of 2020.And, with ships not setting sail until at least November, that projection's probably not coming down. Sure, with over $10 billion in liquidity, the company can stay afloat for more than a year. But, tapping into this lifeline means Carnival's going to get out of this in a much weaker position.With a heavy debt load incurred during this rough environment, it's a long road ahead for shares to retrace prior levels. And, with uncertainty over how quickly cruise demand will bounce back, shares may head lower before it's all said and done. This Ship Could Sink FurtherIt's easy to compare cruise line stocks to airline stocks, but as our own Matt McCall wrote last month, there's a key difference. As he put it, there are multiple demand channels for air travel.Sure, like cruise lines, people hop on planes for personal vacations. However, there are situations where people have to fly. Whether its to attend a family member's wedding or required travel for business, there's more at play that can help get the airlines back on their feet.Cruise lines? All they have is the vacationer market. And, given there are plenty of vacation substitutes to cruise travel, this industry could still struggle. Even after ships set sail again.So, where does that leave Carnival? Post-pandemic, profitability may continue to be a challenge. Coupled with what will be a highly-levered balance sheet, and it's hard to see shares making any sort of epic comeback.In fact, shares could keep on sinking lower for now. While the worst-case scenario may already be priced into airline stocks, it's debatable whether that's the case with cruise stocks.How low could CCL stock go? That's hard to tell. The specter of a vaccine coming out by early next year may be giving shares some support. But, what happens if bringing a vaccine to market takes longer than expected? Shares could fall back to lows set during March's pandemic-driven sell-off.Granted, that may be a great entry point for a "bottom-fisher's buy." But, for now, the prospect of further decline means you ought to steer clear for now. Wait and See If CCL Stock Falls Back to Single DigitsAs the world contends with the coronavirus, there's still an opportunity to take high-risk, high-return positions in hard-hit stocks. But, compared to other struggling industries like airlines, cruise operators like Carnival face greater hurdles.Hemorrhaging cash while its ships sit mothballed, the situation could continue to deteriorate. That may mean a great entry point down the road (if shares fall back to single-digits).But, for now, take a "wait-and-see" approach with CCL stock. There's no compelling reason to climb aboard today.Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities. More From InvestorPlace * Why Everyone Is Investing in 5G All WRONG * America's 1 Stock Picker Reveals His Next 1,000% Winner * Revolutionary Tech Behind 5G Rollout Is Being Pioneered By This 1 Company * Radical New Battery Could Dismantle Oil Markets The post It Still Is Way Too Early to Consider Setting Sail With Carnival Stock appeared first on InvestorPlace.