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.
Just because a business has cash doesn’t mean it’s a good investment. Luckily, StockStory is here to help you separate the winners from the losers. That said, here are three companies with net cash positions that don’t make the cut and some better choices instead.
Manhattan Associates (MANH)
Net Cash Position: $182 million (1.4% of Market Cap)
Built on a "versionless" cloud architecture that delivers quarterly updates to all customers, Manhattan Associates (NASDAQ: MANH) develops cloud-based software that helps retailers, wholesalers, and manufacturers manage their supply chains, inventory, and omnichannel operations.
Why Are We Cautious About MANH?
- Average billings growth of 5.7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 4.1% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 56.3% is way below its competitors, leaving less money to invest in areas like marketing and R&D
Manhattan Associates’s stock price of $213.70 implies a valuation ratio of 11.8x forward price-to-sales. If you’re considering MANH for your portfolio, see our FREE research report to learn more.
Perdoceo Education (PRDO)
Net Cash Position: $565 million (24.4% of Market Cap)
Formerly known as Career Education Corporation, Perdoceo Education (NASDAQ: PRDO) is an educational services company that specializes in postsecondary education.
Why Are We Wary of PRDO?
- Annual revenue growth of 2.9% over the last two years was below our standards for the consumer discretionary sector
- Waning returns on capital imply its previous profit engines are losing steam
At $35.68 per share, Perdoceo Education trades at 22.8x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including PRDO in your portfolio.
Barrett (BBSI)
Net Cash Position: $64.94 million (5.6% of Market Cap)
Operating as a professional employer organization (PEO) that serves over 8,000 companies with more than 120,000 worksite employees, Barrett Business Services (NASDAQ: BBSI) provides management solutions that help small and mid-sized businesses handle human resources, payroll, workers' compensation, and other administrative functions.
Why Does BBSI Worry Us?
- Smaller revenue base of $1.20 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Free cash flow margin dropped by 10.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Barrett is trading at $45.35 per share, or 19.6x forward P/E. Dive into our free research report to see why there are better opportunities than BBSI.
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