Best Stock to Buy Right Now: Carnival vs. Royal Caribbean

Key Points

• Carnival is the No. 1 cruise line in terms of market share, a position unlikely to change for the foreseeable future.

• Royal Caribbean has outshined Carnival on some key financial metrics.

• 10 stocks we like better than Royal Caribbean Cruises ›

Carnival (NYSE: CCL) and Royal Caribbean (NYSE: RCL) are the No. 1 and No. 2 companies in the cruise line industry. This point is worth noting, as former GE Aerospace CEO Jack Welch always targeted the No. 1 or No. 2 company in an industry when looking for investments. That's a factor that might persuade investors to put both cruise stocks on their watchlists.

Both cruise lines are also in the same boat in many respects. They lost billions of dollars and resorted to debt financing amid the pandemic-driven closure and the costly process of returning their ships to the seas.

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Over time, they have managed to fill cabins beyond full capacity and have responded by adding ships to their fleets. Nonetheless, despite the strength of both companies, one stock is more likely to stand out under current conditions.

Image source: Getty Images.

A look at both businesses

Carnival is by far the largest cruise line, claiming around 42% of all passenger traffic, according to Cruise Market Watch. Royal Caribbean carries 27% of all cruise passengers.

In many respects, both companies are benefiting from the same trend. Cruise ships are full, and since the industry defines 100% capacity as two people in each cabin, Royal Caribbean's occupancy is up to 110% as of the second quarter of 2025 (ended June 30). Carnival just released its results for the third quarter of fiscal 2025 (ended Aug. 31), and it is up to 112% occupancy.

To address the demand, both companies have added ships, but likely not as fast as they would like. Both companies reported exceptionally strong bookings, with Carnival explicitly stating that its 2026 bookings exceeded its ability to add capacity.

How some key financial metrics compare

The challenge in adding more ships is the massive debts left over from the pandemic, as that process claims capital the companies might otherwise allocate to shipbuilding. The silver lining in that unfortunate scenario is that both companies have typically retired debt as it comes due and significantly reduced interest expenses, as falling debt burdens allow them to negotiate more favorable loan terms.

Carnival ended fiscal Q3 with $26.5 billion in total debt, down from almost $28.9 billion in the year-ago quarter. Royal Caribbean benefits from a similar trend, with the total debt of $19 billion down from $21.1 billion one year ago.

Still, this is where Royal Caribbean might have a slight edge. Royal Caribbean's $9.4 billion book value is not much smaller than Carnival's book value of $12 billion. This means that Royal Caribbean's debt-to-equity ratio of 2.0 is below Carnival's ratio of 2.2.

That edge may have motivated Royal Caribbean to make a move that shows a high degree of confidence in its financials. In 2024, it reinstated the dividend that it suspended during the pandemic's height, and has since raised it three times. Consequently, Royal Caribbean shareholders now earn a dividend yield of around 1%, just under the S&P 500 average of 1.2%. In comparison, Carnival still does not pay a dividend.

Such factors may help explain why Royal Caribbean stock has driven positive shareholder returns in this decade, while Carnival Cruise stock has yet to recover from the stock sell-off in early 2020.

CCL data by YCharts.

It's worth noting that investors will have to pay a premium for those higher returns. Carnival's price-to-earnings (P/E) ratio of 15 is well below Royal Caribbean's 24 earnings multiple. That higher valuation may not deter investors, since the S&P 500 average P/E ratio is 31. However, it is an indication of the increased confidence in Royal Caribbean stock.

Carnival or Royal Caribbean?

Between the two stocks, Royal Caribbean is more likely to drive higher investment returns over time.

This does not mean Carnival stock is not a buy. Considering its lower P/E ratio and its ability to fill its cabins and retire debts, it will likely remain the market leader in this industry. A potential recovery of the stock price to pre-pandemic levels and beyond could also mean it earns higher returns than Royal Caribbean for a time.

Nonetheless, most of the financial metrics appear more favorable to Royal Caribbean. Considering its lower relative debt burden and ability to pay a dividend, it likely pays to choose Royal Caribbean despite its higher P/E ratio.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. and GE Aerospace. The Motley Fool has a disclosure policy.