Key Points

The cruise industry has recovered nicely from the early days of the pandemic. Carnival and Royal Caribbean have had high occupancy and strong bookings. Both shares have had big run-ups over the past year -- so which one is better? 10 stocks we like better than Carnival Corp. ›

Talk about tariffs and the impact on the world economy seemingly appears in the news daily. The policy keeps changing, making it difficult for investors to assess companies' prospects.

The world's economic health affects the cruise industry. After all, people aren't likely to shell out money for a vacation when they've either lost or fear losing their jobs.

However, while it's difficult to block out current events, it's important for investors to think long-term. On that basis, which stock, Carnival(NYSE: CCL) or Royal Caribbean Cruises(NYSE: RCL), offers the better long-term investment potential?Image source: Getty Images.

Carnival

Carnival offers cruises under brands like Carnival Cruise Lines, Princess Cruises, Holland America, and Costa Cruises. These brands appeal to a wide range of customers.

The cruise industry went through a rough spell a few years ago when stay-at-home orders were put in place during the early days of the COVID-19 virus. And Carnival was no exception. However, the industry has improved and so have the company's results.

Carnival's first fiscal quarter revenue increased 7.5% to $5.8 billion, and the operating profit nearly doubled to $543 million. Occupancy was 103% compared to 102% a year ago. These are greater than 100% since the calculation is based on the industry standard that assumes a two-person room. The fiscal period ended on Feb. 28.

The next year looks promising based on bookings. Most of this year has been booked at record prices. This positive news hasn't been lost on the investment community. Carnival's share price gained 40.4% over the past year through May 8. That's trounced the S&P 500's 8.9% return.

Still, the stock's valuation has become better. Carnival's shares have a 13 price-to-earnings (P/E) ratio compared to 60 a year ago and 20 at the start of 2025. The S&P 500 sells at a P/E multiple of 27.

Royal Caribbean Cruises

Royal Caribbean Cruises provides cruises under its namesake and Celebrity Cruises brands. Royal Caribbean aims to compete in the contemporary (broad segment including families) and premium (quality and comfort, but not as expensive as the luxury experience) markets. Celebrity Cruises operates in the premium segment.

Royal Caribbean has also benefited from a better environment. First-quarter revenue grew 7.3% to $4 billion, and operating income increased 26% to $945 million. People continue flocking to its cruises. Royal Caribbean had a 108.8% occupancy rate, up from 107% a year ago. These were done at higher rates, too. (Over 100% simply means that all rooms are booked and more than two people, such as kids, are sharing some of the cabins.)

Story Continues

Royal Caribbean's shares have increased about 65% over the past year. The stock's valuation, based on the P/E multiple, has stayed fairly constant during this time. The shares trade at a P/E ratio of 19.

Looking over the horizon

While the seas appear calm and both cruise companies have been benefiting, choppy waters could appear on the horizon.

The uncertainty created by U.S. tariffs and other countries' retaliatory actions means the global economy could result in higher prices that could further stress consumers. Additionally, slower economic growth may result as companies see lower profits and hold back growth plans.

This means people will likely cut back on discretionary spending, including vacations. That would hit the cruise industry, including Carnival and Royal Caribbean, hard. Although both stocks sell at lower P/E ratios than the S&P 500, that's typical for cyclical companies.

Even taking a long view, it's hard to commit to either stock right now even at the current valuations. I'd take a wait-and-see approach. Hence, I wouldn't buy either Carnival or Royal Caribbean at this point, but I'd keep an eye on both to see how things shake out.

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

Best Stock to Buy Right Now: Carnival vs. Royal Caribbean Cruises was originally published by The Motley Fool

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