Carnival's (NYSE: CCL) shareholders have been very happy over the last year. After all, the stock price gained over 52%, easily outpacing the S&P 500's 22%.

That may have you shying away from the shares. Has the price risen too quickly, or will results, and the stock, continue recovering? To make that determination, you need to look at Carnival's business and its prospects.

Traveling the seas again

Certainly, the early days of the pandemic decimated the cruise industry. Going on a ship with many other people was the last thing people wanted to do. And many had to stay home due to governmental restrictions.

Fiscal 2020 revenue dropped 73% to $5.6 billion. Carnival lost $10.2 billion, a reversal from the previous year's $3 billion profit. This period ended on Nov. 30, 2020.

Fast forward, and people have been making up for lost time and traveling. That includes taking cruises, which benefits Carnival. For the quarter ended on Feb. 29, occupancy was 102%, and these excursions were booked at higher prices. Occupancy was greater than 100% since the industry assumes two passengers per cabin, although some can fit more.

That drove the period's revenue to $5.4 billion, 22% higher than a year ago. The near future looks good. Management noted that bookings for the rest of the year are the best in the company's history, and pricing and occupancy remain above year-ago levels.

Caution ahead

While the pandemic was an extreme event that quickly affected Carnival's results, the company operates a cyclical business. While the U.S. economy appears to be doing well, there are signs of slowing. The first-quarter gross domestic product growth slowed to 1.6% from the previous period's 3.4%.

With the Federal Reserve keeping interest rates high in an effort to thwart inflation, you can't rule out a further slowing or even a recession. If layoffs mount, people will cancel their cruises and avoid booking new ones until they feel better about their job prospects.

It's worth keeping an eye on the bigger macroeconomic picture to see how things develop. Hence, while Carnival's near-term outlook looks bright, the long-term picture looks a bit fuzzy right now.

Valuation

The stock trades at a price-to-sales ratio (P/S) of 0.8. That's about the same valuation from a year ago, despite the stock's big run-up. During this time, the S&P 500's P/S multiple expanded from 2.4 to 2.8.

It's important to remember that Carnival's cyclicality makes its business less predictable than other sectors, such as consumer staples. That's one reason the stock trades at a lower valuation than the overall market. But the P/S ratio looks reasonable compared to its 10-year history.

Does that translate into a buying opportunity for Carnival's shares? It's tough to buy the shares when the economy shows signs of slowing. But I'd hold the shares given the reasonable valuation and strong fundamentals.

Long-term investors should put this one on their radar and watch future developments, however. If the valuation becomes more favorable, and you see signs that the economy is doing well, I'd look to buy shares.

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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool recommends Carnival Corp. The Motley Fool has a disclosure policy.

Carnival: Buy, Sell, or Hold? was originally published by The Motley Fool