Investing is putting money to work now, with the expectation that it will be worth more later. It’s okay to dream big – say, a five-fold increase in six years – but you have to choose the right actions.
What actions can turn $1,000 today into $5,000 in 2030? Two names that I like are Carnival (NYSE:CCL) And Year (NASDAQ:ROKU). Let’s take a closer look.
1. Carnival
You might think it’s an odd bet for the world’s largest cruise operator to be a five-bagger by 2030, but there are a few factors that could cause the stock to cruise in the coming years. Let’s start with leverage. Cruise lines took on a lot of additional debt during the pandemic-related shutdown in 2020, which lasted into 2021.
Leverage isn’t usually a positive thing, but let’s play with it. Carnival’s market capitalization is $20 billion. The value of his indebted company is almost $50 billion. If Carnival’s market capitalization increased fivefold to $100 billion, its enterprise value – all else being equal – would less than triple to $130 billion. The reality could be more lenient if Carnival used its newfound profitability to pay down debt and buy back stock. Last year alone, it spent $4 billion paying down debt. However, based on the current starting point, the point here is that Carnival’s company value is only expected to appreciate 160% in six years.
As for Carnival’s business, it’s doing a lot better than you probably think. Carnival has record bookings for future sailings, meaning passenger demand and what customers are willing to pay for a cruise in the near future have never been higher. Some naysayers thought the cruise industry would never be the same after the worst of the pandemic, but Carnival reported record revenue for its fiscal first quarter earlier this year.
The short-term outlook is encouraging and the valuation is convincing. Carnival trades at a reasonable 16 times what analysts estimate it will earn this fiscal year (which ends in November). The multiple drops to 11 if we look to next year. If we go out to 2030 – which isn’t really recommended, but necessary to achieve this six-year scenario – analysts predict that Carnival will earn $3.25 per share. That’s less than five times the stock’s current level. This is also a market capitalization/earnings ratio of less than 25 if the stock has appreciated five times, a premium but realistic valuation.
It might even be cheaper. Carnival has consistently exceeded Wall Street profit targets over the past year and has changed, notably double-digit beat percentage in its last three financial reports. With the world’s largest fleet of ships in various price points, Carnival is well-positioned to navigate the inevitable waves that will rise and fall over the next six years. The future is bright for cruise line stocks in general and Carnival in particular.
2nd year
Next we have Roku. Let’s start at the starting line, like we did for Carnival. Roku stock closed at $53.65 on Thursday. It was trading as high as $490.76 three summers ago. Its share count is slightly higher and its long-term debts excluding leases are lower. So if Roku grew fivefold, to around $268 in six years, it would still be a little more than half of its peak.
Why is Roku out of favor? It’s not revenue growth. Revenues have almost doubled over the past three years. It’s not the platform’s popularity, as the 81.6 million households using it to stream digital content to their TVs have never been more engaged than they are today.
There are some competitive threats and monetization challenges, but these are expected to prove temporary. Roku has been able to grow despite competing for years with some of the nation’s wealthiest consumer technology companies. Short-term fears about competition appear exaggerated. Recent losses and stagnation in average revenue per user may take a while to turn positive, but that’s the beauty of this six-year timeline for getting back on track in a niche that will only grow in importance with the weather.
Should you invest $1,000 in Carnival Corp. right now ?
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Rick Munarriz has positions in Roku. The Motley Fool ranks and recommends Roku. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.
2 stocks that could turn $1,000 into $5,000 by 2030 was originally published by The Motley Fool
