Companies with more cash than debt can be financially resilient, but that doesn’t mean they’re all strong investments. Some lack leverage because they struggle to grow or generate consistent profits, making them unattractive borrowers.
Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. That said, here are three companies with net cash positions to avoid and some better alternatives instead.
Elastic (ESTC)
Net Cash Position: $805.4 million (12.6% of Market Cap)
Built on the powerful open-source Elasticsearch technology that powers search functionality for thousands of websites worldwide, Elastic (NYSE: ESTC) provides a search and AI platform that helps organizations find insights from their data, monitor applications, and protect against security threats.
Why Does ESTC Give Us Pause?
- Products, pricing, or go-to-market strategy may need some adjustments as its 13.9% average billings growth over the last year was weak
- Estimated sales growth of 13.6% for the next 12 months implies demand will slow from its two-year trend
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
Elastic is trading at $60.50 per share, or 3.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ESTC.
News Corp (NWSA)
Net Cash Position: $25 million (0.2% of Market Cap)
Established in 2013 after a restructuring, News Corp (NASDAQ: NWSA) is a multinational conglomerate known for its news publishing, broadcasting, digital media, and book publishing.
Why Do We Avoid NWSA?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Returns on capital haven’t budged, indicating management couldn’t drive additional value creation
News Corp’s stock price of $23.15 implies a valuation ratio of 18.9x forward P/E. If you’re considering NWSA for your portfolio, see our FREE research report to learn more.
Simmons First National (SFNC)
Net Cash Position: $70.66 million (2.3% of Market Cap)
With roots dating back to 1903 and a presence across Arkansas, Kansas, Missouri, Oklahoma, Tennessee, and Texas, Simmons First National (NASDAQ: SFNC) is a regional bank holding company that provides banking and financial services to individuals and businesses.
Why Is SFNC Risky?
- Annual net interest income growth of 2.4% over the last five years was below our standards for the banking sector
- Projected 17.7 percentage point efficiency ratio increase over the next year signals its day-to-day expenses will rise
- Earnings per share fell by 6.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
At $21.23 per share, Simmons First National trades at 0.9x forward P/B. Check out our free in-depth research report to learn more about why SFNC doesn’t pass our bar.
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