Investors who bought Carnival (CCL) stock at the start of the pandemic made out if they sold during this travel stock’s 2021 reopening rally. If you bought CCL stock after that? You’ve been burned, big time. In hindsight, it’s clear shares in the cruise line operator bounced back too quickly.

Its move from single-digits to prices topping $30 per share made little sense. The financing moves it made to stay afloat during the lockdown weren’t accounted for at that price. I’m talking about increased debt. Also, dilution from equity raises.

But a more accurate reflection of the impact of debt and dilution isn’t the only reason why Carnival’s been a sinking ship since late last year. Other factors have put pressure on shares. Its move below the low-teens per share is not an overreaction. Caution is key if you’re looking to buy it.

CCL Stock: Continued Slide Is Justified

Although current market conditions haven’t helped, the continued drop in price for Carnival shares is primarily due to company-specific factors. As mentioned above, the pandemic continues to impact its performance.

In its last reported quarterly results, revenue came in well short of estimates. Inflationary pressures like higher fuel costs resulted in wider-than-expected losses. Due to these underwhelming results, sell-side analysts in recent months have upped their estimates for the company’s reported loss this fiscal year (ending November 2022).

For fiscal 2023, the analyst community still expects it to get out of the red. Consensus calls for FY23 earnings per share (EPS) came in at around $1.40 per share. Compared to the current CCL stock price, this may look cheap. However, don’t read too much into this single-digit forward earnings multiple. Virus variants may be easing, but something else that could impact demand going forward: a possible recession.

Yes, this risk factor has already had an impact on its stock price. Whether it’s fully reflected, though, is another question. An economic slowdown/recession will likely result in results for Carnival short of even today’s walked back expectations. The market hasn’t overreacted in its heavy discounting of future estimated earnings.

Upside May be Less Ample Than it Seems

It’s understandable why you may think CCL stock is a bargain at today’s prices. After all, it traded for over $30 per share during the post-lockdown recovery, and for over $50 per share pre-pandemic. Keep in mind though that a return to $30 to $50 per share is far from a given.

Even worse, a move back to, say, $20 per share, may not be in the cards within a reasonable timeframe. Obviously,  missing the mark on FY23 results will challenge a return to the $20 per share level. For the most part, CCL has traded for around 10x-15x earnings.

But besides this, its debt and dilution issue may be far from over. Last month, in order to refinance debt coming due in 2023, the company was forced to offer a double-digit interest rate (10.5%) to attract buyers for a new bond offering.

Recently, Morgan Stanley’s Jamie Rollo downgraded Carnival, plus its peers Norwegian Cruise Line Holdings (NYSE:NCLH) and Royal Caribbean Cruises (NYSE:RCL). Among several concerns, the analyst also cited an increased chance of further equity raises. In other words, more dilution, which could limit upside potential.

Be Cautious and Wait for Fire Sale Prices

At today’s prices, investors buying Carnival stock today are basically making the wager that the company not only meets, but beats, 2023 expectations. However, as more signs point to continued disappointment, it doesn’t appear worthwhile to dive in today.

Inflationary pressures and recession risk may mean that debt and dilution problems aren’t behind it. Forget about it hitting $30 per share, or even $50 per share, within the next year. Re-hitting $20 per share may be a challenge. That’s not to say the situation’s fully hopeless for Carnival.

Possible divestitures, such as a sale of its Seabourn unit, could help to improve the situation. It may be an exaggeration to say there’s a high chance of a full shareholder wipeout. Still, that doesn’t mean you should buy now. Wait for fire sale prices before buying CCL stock.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.