A cash-heavy balance sheet is often a sign of strength, but not always. Some companies avoid debt because they have weak business models, limited expansion opportunities, or inconsistent cash flow.
Financial flexibility is valuable, but it’s not everything - at StockStory, we help you find the stocks that can not only survive but also outperform. That said, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
PagerDuty (PD)
Net Cash Position: $169.7 million (11.2% of Market Cap)
Born from the frustration of developers being woken up by unprioritized alerts, PagerDuty (NYSE: PD) is a digital operations management platform that helps organizations detect and respond to IT incidents, outages, and other critical issues in real-time.
Why Are We Cautious About PD?
- Products, pricing, or go-to-market strategy may need some adjustments as its 5.9% average billings growth over the last year was weak
- Estimated sales growth of 5.8% for the next 12 months implies demand will slow from its two-year trend
- Suboptimal cost structure is highlighted by its history of operating margin losses
At $16.31 per share, PagerDuty trades at 3x forward price-to-sales. If you’re considering PD for your portfolio, see our FREE research report to learn more.
Stitch Fix (SFIX)
Net Cash Position: $141.3 million (25.9% of Market Cap)
One of the original subscription box companies, Stitch Fix (NASDAQ: SFIX) is an online personal styling and fashion service that curates personalized clothing selections for customers.
Why Do We Avoid SFIX?
- Sluggish trends in its active clients suggest customers aren’t adopting its solutions as quickly as the company hoped
- Historical operating margin losses point to an inefficient cost structure
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Stitch Fix is trading at $4.19 per share, or 12.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than SFIX.
Insperity (NSP)
Net Cash Position: $20 million (1.1% of Market Cap)
Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE: NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.
Why Do We Think Twice About NSP?
- Muted 3.2% annual revenue growth over the last two years shows its demand lagged behind its business services peers
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 13.2% annually
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Insperity’s stock price of $49.35 implies a valuation ratio of 15.5x forward P/E. To fully understand why you should be careful with NSP, check out our full research report (it’s free).
Stocks We Like More
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