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. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
USANA (USNA)
Net Cash Position: $151.3 million (25.7% of Market Cap)
Going to market with a direct selling model rather than through traditional retailers, USANA Health Sciences (NYSE: USNA) manufactures and sells nutritional, personal care, and skincare products.
Why Are We Wary of USNA?
- Annual revenue declines of 5.9% over the last three years indicate problems with its market positioning
- Revenue base of $899.2 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Performance over the past three years shows each sale was less profitable as its earnings per share dropped by 16.2% annually, worse than its revenue
USANA is trading at $30.47 per share, or 11.1x forward P/E. Dive into our free research report to see why there are better opportunities than USNA.
Penumbra (PEN)
Net Cash Position: $204 million (2% of Market Cap)
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE: PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Are We Cautious About PEN?
- Smaller revenue base of $1.28 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Low free cash flow margin of 4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
At $264.74 per share, Penumbra trades at 61.5x forward P/E. Check out our free in-depth research report to learn more about why PEN doesn’t pass our bar.
State Street (STT)
Net Cash Position: $57.06 billion (174% of Market Cap)
Dating back to 1792 when Boston's Long Wharf was the center of global shipping and trade, State Street (NYSE: STT) provides custody, investment management, and other financial services to institutional investors like pension funds, asset managers, and central banks worldwide.
Why Should You Dump STT?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.3% over the last five years was below our standards for the financials sector
- Earnings per share lagged its peers over the last five years as they only grew by 5.2% annually
- Low return on equity reflects management’s struggle to allocate funds effectively
State Street’s stock price of $116 implies a valuation ratio of 10.9x forward P/E. If you’re considering STT for your portfolio, see our FREE research report to learn more.
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