Stock Trade of the Week: Carbonite (CARB)

Carbonite (Nasdaq: CARB) – Carbonite is a software firm whose products specifically focus on securing and protecting data. The company offers Carbonite Safe which is a cloud backup solution for customers to protect and backup data from deletions, viruses, ransomware, and other threats. Carbonite Safe is just one of many products the company offers. The company is headquartered in Boston, Massachusetts and was founded in 2005.

Earnings for Carbonite have grown at an impressive pace. The EPS growth rate over the last three years has averaged 90%. Earnings grew by 50% in the most recent quarter compared to the same quarter a year earlier.

Carbonite’s sales have also been growing at an solid rate, but not as fast as earnings.

Sales have grown at an annual rate of 26% per year over the last three years and they grew by 25% in the most recently reported quarter.

Looking at the management efficiency measurements, Carbonite shows a return on equity of 37.8% and a profit margin of 10.4%.

The ROE is really strong while the profit margin is slightly below average.

As for the sentiment toward Carbonite, it isn’t so much bearish as a matter of the stock flying below the radar.

There are only nine analysts following the stock with seven of them rating the stock as a “buy”. The other two analysts rate the stock as a “hold”. The short interest ratio is currently at 3.45 and that is slightly above average.

Carbonite saw its stock move tremendously higher from early 2016 into the third quarter of 2018. The stock jumped from around $7.50 a share to over $42.50 a share. The stock did pullback from its September high and bounced back a little in late December. The stock pulled back again in early February, but seems to have found support in the $22.50 area.

Suggested strategy: Buy CARB with a maximum entry price of $26.50. I would set a target of at least $37 over the next 6 to 9 months (for a potential return of almost 40% from here). I would also suggest a stop at $21.50.

— Rick Pendergraft

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