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.
Hudson Technologies (HDSN)
Net Cash Position: $84.14 million (26% of Market Cap)
Founded in 1991, Hudson Technologies (NASDAQ: HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Are We Wary of HDSN?
- Annual sales declines of 9.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Waning returns on capital imply its previous profit engines are losing steam
Hudson Technologies’s stock price of $7.31 implies a valuation ratio of 11.1x forward EV-to-EBITDA. Read our free research report to see why you should think twice about including HDSN in your portfolio.
Progyny (PGNY)
Net Cash Position: $317.1 million (14.1% of Market Cap)
Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ: PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.
Why Does PGNY Give Us Pause?
- Subscale operations are evident in its revenue base of $1.27 billion, meaning it has fewer distribution channels than its larger rivals
- ROIC of 2.1% reflects management’s challenges in identifying attractive investment opportunities
Progyny is trading at $26.11 per share, or 13.4x forward P/E. Dive into our free research report to see why there are better opportunities than PGNY.
Connection (CNXN)
Net Cash Position: $397.1 million (25.7% of Market Cap)
Starting as a small computer products seller in 1982 and evolving into a Fortune 1000 company, Connection (NASDAQ: CNXN) is a technology solutions provider that helps businesses and government agencies design, purchase, implement, and manage their IT infrastructure and systems.
Why Are We Out on CNXN?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 4.5% annually
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.1% for the last five years
At $61.30 per share, Connection trades at 16.7x forward P/E. Read our free research report to see why you should think twice about including CNXN in your portfolio.
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