A surplus of cash can mean financial stability, but it can also indicate a reluctance (or inability) to invest in growth. Some of these companies also face challenges like stagnating revenue, declining market share, or limited scalability.
Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. Keeping that in mind, here are three companies with net cash positions to avoid and some better alternatives instead.
Sonos (SONO)
Net Cash Position: $191.8 million (10.2% of Market Cap)
A pioneer in connected home audio systems, Sonos (NASDAQ: SONO) offers a range of premium wireless speakers and sound systems.
Why Do We Avoid SONO?
- Annual revenue declines of 8% over the last two years indicate problems with its market positioning
- Historical operating margin losses point to an inefficient cost structure
- Negative returns on capital show management lost money while trying to expand the business
Sonos is trading at $15.26 per share, or 25.5x forward P/E. Dive into our free research report to see why there are better opportunities than SONO.
News Corp (NWSA)
Net Cash Position: $367 million (2.1% 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 Should You Sell NWSA?
- Sales tumbled by 1.3% annually over the last five years, showing consumer trends are working against its favor
- Anticipated sales growth of 2.6% for the next year implies demand will be shaky
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
News Corp’s stock price of $30.35 implies a valuation ratio of 31.1x forward P/E. If you’re considering NWSA for your portfolio, see our FREE research report to learn more.
Keysight (KEYS)
Net Cash Position: $55 million (0.2% of Market Cap)
Spun off from Hewlett-Packard in 2014, Keysight (NYSE: KEYS) offers electronic measurement products for use in various sectors.
Why Does KEYS Give Us Pause?
- Backlog has dropped by 1.9% on average over the past two years, suggesting it’s losing orders as competition picks up
- Earnings per share have dipped by 9.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
At $177.90 per share, Keysight trades at 23.7x forward P/E. Check out our free in-depth research report to learn more about why KEYS doesn’t pass our bar.
Stocks We Like More
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