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 is one company with a net cash position that balances growth with stability and two best left off your watchlist.
Two Stocks to Sell:
Qualys (QLYS)
Net Cash Position: $314.7 million (6.4% of Market Cap)
Originally developed to address the growing complexity of IT security in the cloud era, Qualys (NASDAQ: QLYS) provides a cloud-based platform that helps organizations identify, manage, and protect their IT assets from cyber threats across on-premises, cloud, and mobile environments.
Why Does QLYS Fall Short?
- Underwhelming ARR growth of 9.6% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its three-year trend
- Free cash flow margin is forecasted to shrink by 3.9 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Qualys’s stock price of $136.60 implies a valuation ratio of 7.3x forward price-to-sales. Read our free research report to see why you should think twice about including QLYS in your portfolio.
Byrna (BYRN)
Net Cash Position: $10.4 million (2.3% of Market Cap)
Providing civilians with tools to disable, disarm, and deter would-be assailants, Byrna (NASDAQ: BYRN) is a provider of non-lethal weapons.
Why Does BYRN Worry Us?
- Persistent operating margin losses suggest the business manages its expenses poorly
- Cash-burning history makes us doubt the long-term viability of its business model
- Short cash runway increases the probability of a capital raise that dilutes existing shareholders
At $20.89 per share, Byrna trades at 46.2x forward EV-to-EBITDA. If you’re considering BYRN for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Erie Indemnity (ERIE)
Net Cash Position: $356.1 million (2.1% of Market Cap)
Operating under a unique business model dating back to 1925, Erie Indemnity (NASDAQ: ERIE) serves as the attorney-in-fact for Erie Insurance Exchange, managing policy issuance, claims handling, and investment services for this reciprocal insurer.
Why Should You Buy ERIE?
- Annual revenue growth of 14.4% over the past two years was outstanding, reflecting market share gains this cycle
- Balance sheet strength has increased this cycle as its 12.8% annual book value per share growth over the last five years was exceptional
- Market-beating return on equity illustrates that management has a knack for investing in profitable ventures
Erie Indemnity is trading at $328.16 per share, or 4.3x trailing 12-month price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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