With Carbonite Shares Lagging Market, CEO Is a Buyer

As Nasdaq stocks in general surged Friday, one stock was a laggard: Carbonite (NASDAQ:CARB). Neck-and-neck with the market’s returns more much of this past year, shares of the cloud storage company dropped 0.4% in Friday trading, and now lag the market. But one notable shareholder doesn’t seem to mind. Rather than lament the stock’s uninspiring performance, Carbonite CEO Mohamad Ali (yes, seriously) went out and bought some shares.

In a Form 4 filing with the SEC Friday, the CEO revealed a 10,000-share purchase. Bought July 15 at an average of $11.85 per share, this was Mr. Ali’s first purchase of Carbonite shares since December of last year (that wasn’t an open market transaction).

Could this be the “buy” signal that outside investors have been waiting for?

What does it mean to you?
Maybe, but probably not. While it’s certainly encouraging to see the CEO step up and acquire shares of Carbonite, Mr. Ali’s purchase amounts to just a 2.2% increase in his total stake in the company (now 460,000 shares). As such, it’s hardly a “bet the house” investment.

Nor should it be.

Priced at $11.75 per share today (ten cents cheaper than Mr. Ali paid), Carbonite shares may not look expensive. But with the company currently unprofitable, they carry a P/E ratio of infinity. And even if the company turns profitable again next year, as analysts predict, Carbonite’s forward P/E ratio works out to nearly 84 times earnings.

Granted, not all is bad at Carbonite. Despite the lack of current profits, free cash flow at the company is positive, with $3.3 million in positive FCF generated over the past year. Growth may also be in the cards, with analysts predicting Carbonite will post long-term earnings growth in the neighborhood of 28% over annually the next five years.

All that being said, the company’s long history of net losses suggests investors might be best advised to wait for an emergence into consistent profitability before following the CEO’s lead, and risking their own money on Carbonite.

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