Carnival Corporation (CCL): Don’t Let Bad Headlines Scare You Away From This Stock

Carnival’s size advantage allows it to earn high return on equity relative to its peers; over the last decade the company has generated a 10% return on equity, compared to 8% for Royal Caribbean and about 0% for Norwegian Cruise Line.

More impressively, Carnival has achieved its higher return on equity while using less debt than its peers. In fact, Norwegian Cruise Line is the highest-levered of all three, though its operational volatility makes it the least likely to gracefully handle a heavy debt burden.

Carnival currently trades at 1.2 times book value. If the company continues to earn a 10% average return on equity, investors will receive an 8.3% annual return on investment. However, if the company increases its debt load and maintains current earning power, investors will easily earn a mid-double-digit annualized return on investment.

Bottom line

Carnival Corporation (NYSE:CCL) is the perfect example of short-term worries providing an opportunity for long-term investors to make a great investment. Investors who use reason and logic to make their decisions will be able to ignore the negativity surrounding Carnival and realize that a great investment opportunity awaits them.

Ted Cooper has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Don’t Let Bad Headlines Scare You Away From This Stock originally appeared on Fool.com and is written by Ted Cooper.

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