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.
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 that don’t make the cut and some better choices instead.
Agilysys (AGYS)
Net Cash Position: $21.66 million (0.7% of Market Cap)
With a tech stack that powers everything from check-in to checkout at some of the world's top hospitality venues, Agilysys (NASDAQ: AGYS) develops and provides cloud-based and on-premise software solutions for hotels, resorts, casinos, and restaurants to manage operations and enhance guest experiences.
Why Are We Hesitant About AGYS?
- Sales trends were unexciting over the last three years as its 19% annual growth was below the typical software company
- Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 62.1%
At $105.83 per share, Agilysys trades at 9.3x forward price-to-sales. To fully understand why you should be careful with AGYS, check out our full research report (it’s free).
Varonis Systems (VRNS)
Net Cash Position: $65.19 million (1% of Market Cap)
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Does VRNS Worry Us?
- Revenue increased by 11% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Poor expense management has led to operating margin losses
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 3 percentage points over the next year
Varonis Systems is trading at $58.92 per share, or 9.6x forward price-to-sales. Dive into our free research report to see why there are better opportunities than VRNS.
Corcept (CORT)
Net Cash Position: $335.6 million (4.4% of Market Cap)
Focusing on the powerful stress hormone that affects everything from metabolism to immune function, Corcept Therapeutics (NASDAQ: CORT) develops and markets medications that modulate cortisol to treat endocrine disorders, cancer, and neurological diseases.
Why Do We Think Twice About CORT?
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 16.9 percentage points
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 2.8% annually
- Diminishing returns on capital suggest its earlier profit pools are drying up
Corcept’s stock price of $73.17 implies a valuation ratio of 41.2x forward P/E. Check out our free in-depth research report to learn more about why CORT doesn’t pass our bar.
Stocks We Like More
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