From Debt to Deck Chairs: Which Cruise Stock Deserves a Spot in Your Portfolio?

Key Points

• Royal Caribbean is riding high on strong bookings and premium pricing power fueled by its Icon-class ships.

• Carnival is focused on a financial turnaround while managing operational changes and brand recovery.

• 10 stocks we like better than Royal Caribbean Cruises ›

After a brutal pandemic-induced dry dock, the cruise industry has managed to come out not just afloat, but steaming full speed ahead. For investors charting their next investment course, the choice comes down to hopping aboard Royal Caribbean (NYSE: RCL), the current captain of luxury and growth, or placing a bet on a Carnival (NYSE: CCL, NYSE: CUK) comeback.

Both stocks have made strides since the COVID crash, but they're sailing in very different directions. Royal Caribbean is throwing launch parties for mega-ships, while Carnival is patching up its balance sheet and hoping for calmer waters ahead. One offers premium momentum, the other a potential value turnaround. So, which one deserves a spot in your long-term portfolio? Let's dive in.

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Royal Caribbean: Smooth sailing ahead

Royal Caribbean isn't just cruising, it's making waves. The company has benefited from the post-pandemic travel boom and is seeing customers booking well into 2027. Its aggressive expansion strategy centers on a fleet of its new Icon-class ships, floating luxury hotels that are designed to command higher prices and appeal to families and upscale travelers.

In addition to its consistently strong public reception, Royal Caribbean has been navigating its finances with precision as well. While its debt ballooned during the pandemic like everyone else's, the company has made significant progress toward deleveraging. Its net debt has declined to $18.3 billion from a pandemic peak of $22 billion, and its credit profile has improved enough to earn confidence from institutional investors, including a BBB- rating from Fitch.

With an earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 42% in Q2 2025, it's clear Royal Caribbean knows how to steer toward profitability even while expanding its fleet. And with a forward P/E ratio of roughly 20x, Royal Caribbean now trades above its pre-pandemic average of 14x, signaling investors are paying up for a chance at continued growth.

Carnival: Still bailing itself out

Carnival, the world's largest cruise operator, is finally seeing blue skies, but it's still got some storm clouds on the horizon. The company has made substantial progress in reducing its pandemic-era debt, aiming for a net debt reduction of $8 billion by the end of 2025. That's encouraging, but not enough to convince the rating agencies. Carnival still carries over $25 billion in net debt, and Fitch considers Carnival's debt as below investment grade, giving it a BB+ rating in June.

Carnival's focus remains on stabilization rather than growth. Instead of launching glamorous new ships, it's refining operations, tightening costs, and streamlining its global footprint. That measured approach is reflected in how the market values the company today. Carnival trades at a forward P/E ratio of about 13x-almost exactly where it traded in its healthier pre-COVID years - and its EBITDA margin is 24%. Its stock is still well below pre-COVID highs, and its recovery has lagged competitors.

But if you believe in turnaround stories, Carnival could offer deep value assuming management executes, interest rates don't spike, and customer loyalty holds.

What could sink the ship?

Both companies still face macro headwinds. Inflation has driven up operating costs across the board increasing the price of fuel, labor, and food. Even geopolitical instability can disrupt itineraries from time to time. And if interest rates stay high, debt refinancing could weigh heavily, especially for Carnival.

For Royal Caribbean, the biggest risk may be overextension. Building the world's largest cruise ships isn't cheap, and if the travel boom cools, pricing power could falter. For Carnival, the risk lies in balance sheet fatigue and brand perception. If policy changes alienate guests, it could take years to rebuild trust.

Who should be your portside portfolio pick?

If you're looking for a high-end company with a clear growth plan and improving fundamentals, Royal Caribbean is your ticket. It trades at a forward P/E about 50% higher than Carnival's, reflecting its premium pricing, newer fleet, and strong demand for luxury experiences like private islands and family focused mega-ships. With 42% EBITDA margins and a rising affluent customer base, Royal has outperformed Carnival nearly twofold in 2025, climbing 53% year-to-date. At a current price of $311 and a 12-month target near $347, analysts see an approximate 10% upside if growth continues It's not cheap, but you're paying a premium that the company has rightfully earned based on its performance.

Carnival, on the other hand, might appeal to the contrarian investor who believes in second acts. Its Q2 2025 EBITDA margin was almost half of Royal Caribbean's at 24%, but it trades around $29, far below its $50 to $60 pre-COVID range, suggesting a 2x long-term upside if its turnaround succeeds. With a global portfolio of brands like Princess Cruises and Holland America Line, Carnival has broad geographic reach and the flexibility to target different customer segments. And its dominance in the mass-market category and focus on budget-conscious travelers make it well-positioned if consumer spending slows. While the stock carries more risk, its comparative discounted valuation to its rival and its turnaround potential offer a compelling case for investors seeking higher long-term rewards.

Whichever you choose, pack your Dramamine, as volatility might be part of the voyage.

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Philippa Main has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.