Buy Alert: Carbonite (CARB)

By Jim Pearce • February 16, 2017

TRADE INSTRUCTIONS
Date: February 16, 2017
Name: Carbonite, Inc.
Symbol: CARB
Type: Open
Limit: Buy below $20

TRADE TARGETS
Holding Period: 4 months
Target Return: 20%
Annualized Return: 60%
Target Price: $24
Stop Loss Level: $17.85

COMPANY DESCRIPTION
Carbonite (NasdaqGM: CARB) is a provider of cloud and business continuity solutions based in Boston, MA. The Company’s solutions are designed to address the specific needs of small and medium sized businesses and individuals by offering unlimited cloud storage, automatic backup and file recovery. Link to company website.

TRADE RATIONALE
Our Rapid Profits Matrix has identified CARB as a momentum stock in the making, given its low market capitalization ($500 million), impending transition to positive earnings and valuation based on future earnings. CARB’s trailing PER of -127 scares off most investors, but its forward PER of only 19 is cheap given its 50% quarterly revenue growth.

Carb just released quarterly earnings last week, so the near-term risk of an earnings surprise has been taken out of the stock. But that report still shows slightly negative earnings, and with only 3 Wall Street analysts following the company it is flying under the radar of most investors and automated stock filters.

All that is likely to change when the company announces positive earnings in three months, but we are buying into this name now to eliminate the possibility of an unexpected buyout offer driving its share price up overnight. During the past two years it has fielded several buyout inquiries that thus far it has rejected, but with the stock market at record highs and the Trump administration getting off to a rocky start this may be the time that its owners decide to cash in.

Even if they don’t sell out, our model tells us that this is a stock in transition that could easily see a big expansion in its earnings multiple once it turns positive. That means either way, we think this one will pay off during the first half of this year.

NOTE: CARB is optionable, but trades on very low volume so use limits when placing orders.

Stock Talk

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Larry Johnson

02/16/17 ‐ 1:30pm ET February 16, 2017 at 1:30pm ET

In at $19.60….hoping for that “unexpected buyout”. 😉

Gompps

02/16/17 ‐ 1:47pm ET February 16, 2017 at 1:47pm ET

In at $19.6317. That buyout would be nice!

black arrow

02/16/17 ‐ 1:52pm ET February 16, 2017 at 1:52pm ET

Hi Larry,
I am in fer 3 reasons our fearless leader rec’d it, and you are in, last reason is it has a PMO BUY Signal.
http://schrts.co/cQWMbY

Larry Johnson

02/16/17 ‐ 4:26pm ET February 16, 2017 at 4:26pm ET

Ha….don’t let my nasty doings influence ya, black arrow…..LOL
Man, I have had some losers (not SW) that I thought were guaranteed winners before.
I subscribe to SW to help avoid those painful lessons…..again….LOL
Like today; how would you like to be on holding end of about 10K shares of AAP that you just bought a few days ago? LOL. Naaa….I’m sticking with Jim. :). BTW, that last AAP Put I bought started making me some money today. I want to hold it till earnings come out, but another drop like today, I’ll probably grab the cash instead.

black arrow

02/16/17 ‐ 8:14pm ET February 16, 2017 at 8:14pm ET

Oh yuou mean too much Zydeco music?
I just read the biggest mistake options traders make is taking on too many contracts. On Tasty Trade they say trade small trade often.
Hey I got red ink toostick with Jim and dont go over board.
Tom Bowley says not to hold into earnings cause it is too irrationall in the outcomes.
I am still waitin to get rich on LSCC – just get to 8>30 is it too much to ask?
You gave PI a good suggestion on CARB where you said not an option play reading between the lines.

Pi Chi

02/16/17 ‐ 2:24pm ET February 16, 2017 at 2:24pm ET

Hi everyone,

I am a new subscriber to Systematic Wealth and would be interested in going the options route. According to the parameters established for the stock purchase, should I be looking to purchase an option with a 4 month expiration and an exercise price when combined with the cost of the option is less than $20. If there is a different method that I should be using perhaps one of my fellow investors or Jim would let me know how to figure the correct option to buy for this and future recommendations. Thanks.

Jim Pearce

02/16/17 ‐ 2:50pm ET February 16, 2017 at 2:50pm ET

Hi Pi, and welcome to Systematic Wealth. The beauty of using options is each investor can define precisely how much risk they are willing to assume based on their personal risk tolerance and performance expectations, so I do not make a specific options recommendation with the trade alerts. Some of our readers prefer buying slightly in-the-money options with longer expiration dates to minimize risk, while others prefer using out-of-the-money options with shorter expiration dates to maximize potential returns. But as you’ll soon see, several of them are happy to share their strategies with the group so you can pick whichever one is most aligned with your objectives. Good luck!

Pi Chi

02/16/17 ‐ 4:14pm ET February 16, 2017 at 4:14pm ET

Thanks for your quick response. Let’s hope we are all successful in our investments.

Larry Johnson

02/16/17 ‐ 4:14pm ET February 16, 2017 at 4:14pm ET

Hello PI and welcome to SW.
I trade both stocks and options based on Jim’s SW alerts.
IMHO, CARB may not be the best one to start out with doing an option strategy due to the low volume that the stock trades at on any given day. For example, today there are less than 260K CARB shares traded. I believe Jim mentioned the low volume warning in his alert. So on this one, I personally went with just buying some of the actual stock. I do love doing options though but I generally try to limit my option strategies to higher volume stocks that can have a fast move on either good, or bad, news.
When it comes to options there are probably a dozen way to do them based on personal preference etc. Me? I’m a cheapie. I try to buy em cheap but with enough time on em for some movement. So on buying calls, I generally go with an expiration date that is past the stock’s next earnings date and buy just out of the money on a day that the stock is down so I can get the lower price all the way around, if possible.
Then again, holding an option on this particular stock would be a good thing IF there were some announcement regarding a buyout that would send the stock soaring. The chances of that are anybody’s guess so I went with the stock rather than the option. But to each his own. Dunno if this helps ya or if it made any sense.

Maria R

02/16/17 ‐ 7:55pm ET February 16, 2017 at 7:55pm ET

Thanks Larry. Your post certainly helps

Pi Chi

02/16/17 ‐ 10:10pm ET February 16, 2017 at 10:10pm ET

Larry,

Thanks for your input, the idea of a takeover is just so tantalizing. I consider myself a cheap cheapie and like the thought of buying 10 $2 options versus buying 100 shares of a $20 stock for the same dollar amount.

black arrow

02/16/17 ‐ 2:49pm ET February 16, 2017 at 2:49pm ET

Hey Carbo stock is green across my screen!

Bruce Demko

02/17/17 ‐ 11:07am ET February 17, 2017 at 11:07am ET

did a covered call on this for 6/16/17 25.00C. Bought Stock for 19.20

Michael Sessions

02/17/17 ‐ 2:03pm ET February 17, 2017 at 2:03pm ET

Hmmm, $2.15 risk / $4.00 reward ratio because of a very close stop…very interesting.
Been using Carb for years…good product. Been watching it for several quarters waiting for it to wake up…which I don’t think that it has just yet. Take a look at the revenue stream quarter-by-quarter for the last 3 years. If CARB is going to make profits, it had better start making more sales and I don’t see the materially increasing revenue YET. What am I missing? Or are we just hoping that the well-justified current security phobia will produce the increasing revenue…because, who else is there out there who does what they do for their target narket? Just as an example, out if hundreds of people I know who are serious computer users, not a single one ever heard of CARB…but all were very interested once I told them about it. Time to put some marketing people on the board?

greenmaster

02/18/17 ‐ 4:40am ET February 18, 2017 at 4:40am ET

Here’s my story on CARB. I bought some options on this back on Jan-10-17. Then the earnings report came along about the end of Jan. My options grew 400% in 3 weeks. I sold them. Then waited a few days, the stock pulled back. Then I went in for the second trip. So now I am waiting for a second score. Awesome!!

black arrow

02/19/17 ‐ 7:23pm ET February 19, 2017 at 7:23pm ET

you took the moolah way to go!!

Derek: Las Vegas, NV

02/24/17 ‐ 4:22am ET February 24, 2017 at 4:22am ET

Nice trade!

Derek: Las Vegas, NV

02/24/17 ‐ 5:05am ET February 24, 2017 at 5:05am ET

CARB has had five short-term bearish technical indicators triggered over the last week or two. So you may see continued weakness which will likely be a good buying opportunity for anyone who hasn’t got in yet. As for me, I’m holding off for now, but may get in if there is a few more dips like yesterday.

Derek

black arrow

03/08/17 ‐ 10:31am ET March 8, 2017 at 10:31am ET

I see that Jim Pearce has put in a comment on Carb up – good Jim.
So for those who think things are quiet, this is correct but I just turned up the volume and took a 7.04% profit off the Table.
Here is a link: http://schrts.co/NO9Oop

Jim Pearce

03/09/17 ‐ 9:45am ET March 9, 2017 at 9:45am ET

Still no news to explain yesterday’s jump in CARB, so if it was a one-time block purchase by an institutional investor than its share price will probably drift down a bit this week until supply/demand equilibrium is reached. However, from a technical perspective yesterday’s price action was meaningful in that it broke above its upper Bollinger Band and pushed the stock to a new all-time high on above-average volume.

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