What Carnival Corporation & plc's (NYSE:CCL) 28% Share Price Gain Is Not Telling You

Carnival Corporation & plc (NYSE:CCL) shareholders have had their patience rewarded with a 28% share price jump in the last month. The last month tops off a massive increase of 121% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Carnival Corporation &'s P/S ratio of 1.2x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in the United States is also close to 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Carnival Corporation &

What Does Carnival Corporation &'s P/S Mean For Shareholders?

Carnival Corporation & certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Carnival Corporation &.

Is There Some Revenue Growth Forecasted For Carnival Corporation &?

The only time you'd be comfortable seeing a P/S like Carnival Corporation &'s is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 108%. The strong recent performance means it was also able to grow revenue by 94% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.7% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 13% per annum growth forecast for the broader industry.

With this information, we find it interesting that Carnival Corporation & is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Carnival Corporation &'s P/S Mean For Investors?

Its shares have lifted substantially and now Carnival Corporation &'s P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Carnival Corporation &'s revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Carnival Corporation & with six simple checks.

If these risks are making you reconsider your opinion on Carnival Corporation &, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.