Carnival stock price plunges 7% as analyst calls it the “most ridiculously overvalued” trade

Shares of Carnival Corporation (NYSE: CCL) are trading nearly 7% down today as the buyers are unable to hold onto huge gains recorded yesterday. Separately, the stock market analyst believes that cruises are “overbought and overvalued”.

Fundamental analysis: Cruises will continue to struggle – analyst

Shares of cruise and travel companies led the pack yesterday as investors were betting on the continued reopening of countries and economies. However, Boris Schlossberg, managing director of FX strategy at BK Asset Management, believes this rally doesn’t have legs at all.

Some cruise operators, including Carnival, have offered very low prices for its tours in a bid to attract, at least, a portion of lost tourists. 

“Carnival, for example, is pricing rooms as low as $28 a night per passenger when their actual fixed costs are close to $100. The hope is that the passengers will then be able to make up revenue by [buying] on-board amenities,” he said.

“But if you think about this, the people who are going to take advantage of this are going to be young families, the ones that have the least amount of disposable income to spend, because those who are most vulnerable to Covid are the older travelers and they’re going to be much less likely to take advantage of these offers,” added Schlossberg.

Shares of Carnival are up 183% from the lows, Royal Caribbean stock is up 161%, while shares of Norwegian Cruise Line trade 158% higher. In addition, shares of the world’s biggest hotel chains – Marriott and Hilton – have also recovered. 

“By the time they open up the cruise ship offers, which will be August, if we’re running at 2[,000]-3,000 Covid infections per day in Florida, I think you’re going to see a much greater dampening of enthusiasm towards that trade. So, I am not at all a buyer of this rebound in travel,” he concluded. 

Technical analysis: Carnival stock price running out of steam

Shares of Carnival are trading around 7% lower today after recording huge gains in the past few days. The stock price has nearly doubled its value in the past four weeks. Yesterday, shares of Carnival gained almost 16%. 

Looking technically, the stock is struggling to stay above the 100-DMA around the $24.00 mark. Although it managed to close above yesterday, today’s plunge shows how vulnerable cruise stocks really are. The key short-term support is located at $19.00, should the pullback continue this week. 

Summary

Shares of Carnival have returned today a portion of yesterday’s gains as cruise stocks struggle to keep the positive momentum going. Some analysts believe that cruise stocks are overvalued and overbought with a reversal in the trend direction likely to take place very soon.