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.
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. Keeping that in mind, here are three companies with net cash positions that don’t make the cut and some better choices instead.
FormFactor (FORM)
Net Cash Position: $228.6 million (10.4% of Market Cap)
With customers across the foundry and fabless markets, FormFactor (NASDAQ: FORM) is a US-based provider of test and measurement technologies for semiconductors.
Why Do We Pass on FORM?
- Muted 3.7% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 13.3 percentage points
- Underwhelming 9% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
FormFactor’s stock price of $28.52 implies a valuation ratio of 21.1x forward P/E. If you’re considering FORM for your portfolio, see our FREE research report to learn more.
Cognex (CGNX)
Net Cash Position: $145 million (2% of Market Cap)
Founded in 1981 when computer vision was in its infancy, Cognex (NASDAQ: CGNX) develops machine vision systems and software that help manufacturers and logistics companies automate quality inspection and tracking of products.
Why Does CGNX Give Us Pause?
- 2% annual revenue growth over the last two years was slower than its business services peers
- Free cash flow margin shrank by 15.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Cognex is trading at $43.49 per share, or 44.4x forward P/E. Read our free research report to see why you should think twice about including CGNX in your portfolio.
Lake City Bank (LKFN)
Net Cash Position: $299 million (18.4% of Market Cap)
Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ: LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.
Why Are We Wary of LKFN?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
- 6.6% annual net interest income growth over the last five years was slower than its banking peers
- Annual tangible book value per share growth of 2.5% over the last five years was below our standards for the banking sector
At $63.53 per share, Lake City Bank trades at 2.2x forward P/B. To fully understand why you should be careful with LKFN, check out our full research report (it’s free).
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