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.
Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. That said, here are three companies with net cash positions that don’t make the cut and some better choices instead.
Sprout Social (SPT)
Net Cash Position: $70.63 million (8.1% of Market Cap)
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ: SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Does SPT Give Us Pause?
- Track record of operating margin losses stem from its decision to pursue growth instead of profits
- Poor free cash flow margin of 7.6% for the last year limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Sprout Social’s stock price of $14.86 implies a valuation ratio of 1.8x forward price-to-sales. If you’re considering SPT for your portfolio, see our FREE research report to learn more.
Graco (GGG)
Net Cash Position: $491.8 million (3.4% of Market Cap)
Founded in 1926, Graco (NYSE: GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Does GGG Fall Short?
- Sales stagnated over the last two years and signal the need for new growth strategies
- Earnings per share have contracted by 1.4% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Diminishing returns on capital suggest its earlier profit pools are drying up
Graco is trading at $86.20 per share, or 28x forward P/E. Check out our free in-depth research report to learn more about why GGG doesn’t pass our bar.
NVR (NVR)
Net Cash Position: $777.8 million (3.2% of Market Cap)
Known for its unique land acquisition strategy, NVR (NYSE: NVR) is a respected homebuilder and mortgage company in the United States.
Why Are We Cautious About NVR?
- Backlog growth averaged a weak 1.3% over the past two years, suggesting it may need to tweak its product roadmap or go-to-market strategy
- Estimated sales decline of 6.9% for the next 12 months implies a challenging demand environment
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
At $8,408 per share, NVR trades at 19.6x forward P/E. To fully understand why you should be careful with NVR, check out our full research report (it’s free).
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