Is Carnival Corp's Current Valuation Undervalued Amid Rising Short Interest and Debt Concerns?

The cruise industry, long a bellwether for global economic sentiment, has navigated a turbulent post-pandemic landscape. Carnival Corporation (CCL), the sector's largest player, now faces a critical juncture: Is its current valuation a contrarian opportunity, or does it reflect lingering risks in a debt-laden industry? This analysis examines CCL's financial metrics, short interest dynamics, and industry positioning to assess its undervaluation potential through the lens of value investing and risk-rebalance strategies.

Valuation Metrics: A Discount to Peers and Historical Norms

Carnival's trailing P/E ratio of 12.07 and forward P/E of 10.11 place it below the cruise industry's average EV/EBITDA of 8.6x in 2025 according to Deloitte. Its EV/EBITDA of 7.99 further underscores a discount to both industry peers and its own historical averages, which averaged -12.0x from 2020 to 2024 as reported by FinBox. This divergence suggests a potential undervaluation, particularly when compared to Norwegian Cruise Line (NCLH), which trades at a P/E of 15.3 and P/B of 6.32 per Gurufocus. Carnival's P/B ratio of 2.67 also reflects a conservative multiple, implying that the market may be underappreciating its asset base.

The broader travel sector, however, presents a mixed backdrop. While U.S. airfare costs rose 3.2% year-over-year, hotel and car rental prices declined according to NerdWallet, creating a fragmented demand environment.

Yet Carnival's recent profit forecast hike-from $1.97 to $2.14 per share-demonstrates resilience in cruise demand as reported by Reuters, a segment less sensitive to discretionary spending cuts than air travel. This divergence positions Carnival as a potential beneficiary of sectoral shifts, even amid macroeconomic headwinds.

Debt Metrics: Progress, But Caution Remains

Carnival's net-debt-to-EBITDA ratio of 3.6x in 2025 marks a significant improvement from 4.7x a year earlier per Nasdaq, driven by $12 billion in debt refinancing and prepayments. While this outperforms the industry's average leverage of 4.88 as cited by CSIMarket, it still lags behind peers like Royal Caribbean (RCL), which maintains a net-debt-to-EBITDA below 3x according to Nasdaq. Carnival's interest coverage ratio of 2.7x per Seeking Alpha meets the minimum threshold for solvency but trails the industry's average of 10.2 according to CSIMarket, highlighting a structural vulnerability.

The company's deleveraging trajectory, however, offers a risk-rebalance angle. With further improvements expected in early 2026 as reported by GCaptain, Carnival's balance sheet is primed for a cyclical rebound. For value investors, this represents a trade-off: a lower entry multiple (EV/EBITDA of 7.99) versus a moderate debt burden that is improving but not yet optimal.

Short Interest: A Contrarian Signal?

Carnival's short interest of 5.15% of float according to MarketBeat-a decline of 3.5% in July 2025 per MarketBeat-suggests a cautious but not extreme bearish stance. The "days to cover" ratio of 4.88 days per MarketBeat indicates a balanced short base, with no immediate risk of a short squeeze. This aligns with a contrarian value thesis: short sellers may be pricing in worst-case scenarios (e.g., a recession-driven demand collapse), while Carnival's earnings resilience and deleveraging efforts could surprise to the upside.

Risk-Rebalance Potential: A Case for Selective Entry

The cruise industry's high leverage (average debt-to-EBITDA of 4.88 per CSIMarket) inherently carries cyclical risk. However, Carnival's improving financials, combined with its discounted valuation, create a compelling risk-rebalance scenario. For investors with a medium-term horizon, the company's deleveraging trajectory and strong EBIT growth $4.3 billion in Q2 2025 could unlock value as macroeconomic uncertainties abate.

Conclusion: A Contrarian Case with Caveats

Carnival's valuation metrics-particularly its EV/EBITDA and P/B ratios-suggest a discount to both historical norms and industry peers. While its debt burden remains elevated, the company's deleveraging progress and earnings resilience position it as a potential contrarian play. Short interest, though moderate, reflects lingering macroeconomic concerns but does not yet signal a consensus bear case. For value investors willing to tolerate near-term volatility, Carnival offers a risk-rebalanced opportunity in a sector poised for cyclical recovery.