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 to steer clear of and a few alternatives to consider.
The Honest Company (HNST)
Net Cash Position: $63.34 million (14.5% of Market Cap)
Co-founded by actress Jessica Alba, The Honest Company (NASDAQ: HNST) sells diapers and wipes, skin care products, and household cleaning products.
Why Should You Sell HNST?
- Subscale operations are evident in its revenue base of $389.8 million, meaning it has fewer distribution channels than its larger rivals
- 6.6 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
- Push for growth has led to negative returns on capital, signaling value destruction
The Honest Company is trading at $3.99 per share, or 15x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why HNST doesn’t pass our bar.
M&T Bank (MTB)
Net Cash Position: $4.90 billion (16.8% of Market Cap)
Tracing its roots back to 1856 when it was founded as Manufacturers and Traders Bank in Buffalo, New York, M&T Bank (NYSE: MTB) is a regional bank holding company that provides retail and commercial banking, trust, wealth management, and investment services to consumers and businesses.
Why Does MTB Fall Short?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.8% annually over the last two years
- Estimated net interest income growth of 5.5% for the next 12 months implies demand will slow from its five-year trend
- 24.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the company’s willingness to accept lower yields to defend its market position
M&T Bank’s stock price of $187.17 implies a valuation ratio of 1.1x forward P/B. If you’re considering MTB for your portfolio, see our FREE research report to learn more.
Columbia Banking System (COLB)
Net Cash Position: $1.20 billion (23.6% of Market Cap)
Created through the merger of two Pacific Northwest banking institutions with deep regional roots, Columbia Banking System (NASDAQ: COLB) operates Umpqua Bank, providing commercial, consumer, and wealth management services across eight western states.
Why Does COLB Worry Us?
- Flat tangible book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle
- Estimated tangible book value per share growth of 3.8% for the next 12 months implies profitability will slow from its two-year trend
At $24.43 per share, Columbia Banking System trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than COLB.
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