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.
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.
Nature's Sunshine (NATR)
Net Cash Position: $65.72 million (26.1% of Market Cap)
Started on a kitchen table in Utah, Nature’s Sunshine (NASDAQ: NATR) manufactures and sells nutritional and personal care products.
Why Is NATR Not Exciting?
- Products fail to spark excitement with consumers, as seen in its flat sales over the last three years
- Subscale operations are evident in its revenue base of $460.8 million, meaning it has fewer distribution channels than its larger rivals
- Earnings per share were flat over the last three years and fell short of the peer group average
At $14.02 per share, Nature's Sunshine trades at 19.1x forward P/E. Read our free research report to see why you should think twice about including NATR in your portfolio.
SolarEdge (SEDG)
Net Cash Position: $12.5 million (0.5% of Market Cap)
Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.
Why Should You Dump SEDG?
- Demand for its offerings was relatively low as its number of megawatts shipped has underwhelmed
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
SolarEdge’s stock price of $40.20 implies a valuation ratio of 1.8x forward price-to-sales. To fully understand why you should be careful with SEDG, check out our full research report (it’s free for active Edge members).
BNY (BK)
Net Cash Position: $28.34 billion (37.5% of Market Cap)
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE: BK) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Does BK Worry Us?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 3.4% over the last five years was below our standards for the financials sector
- Large asset base makes it harder to grow tangible book value per share quickly, and its annual tangible book value per share growth of 6.3% over the last five years was below our standards for the financials sector
- Underwhelming 8.9% return on equity reflects management’s difficulties in finding profitable growth opportunities
BNY is trading at $108.48 per share, or 13.7x forward P/E. Check out our free in-depth research report to learn more about why BK doesn’t pass our bar.
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