A cash-heavy balance sheet is often a sign of strength, but not always. Some companies avoid debt because they have weak business models, limited expansion opportunities, or inconsistent cash flow.

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. That said, here are three companies with net cash positions that don’t make the cut and some better choices instead.

nLIGHT (LASR)

Net Cash Position: $101.7 million (7.1% of Market Cap)

Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQ: LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.

Why Should You Sell LASR?

1. Annual sales declines of 1.6% for the past two years show its products and services struggled to connect with the market during this cycle
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 6.4 percentage points
3. Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned

nLIGHT’s stock price of $29.05 implies a valuation ratio of 5.8x forward price-to-sales. Read our free research report to see why you should think twice about including LASR in your portfolio.

Medifast (MED)

Net Cash Position: $149.6 million (108% of Market Cap)

Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE: MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.

Why Do We Pass on MED?

1. Products have few die-hard fans as sales have declined by 33.9% annually over the last three years
2. Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
3. Free cash flow margin shrank by 7.6 percentage points over the last year, suggesting the company is consuming more capital to stay competitive

Medifast is trading at $13.55 per share, or 0.4x forward price-to-sales. To fully understand why you should be careful with MED, check out our full research report (it’s free).

Repligen (RGEN)

Net Cash Position: $556.5 million (7.9% of Market Cap)

With over 13 strategic acquisitions since 2012 to build its comprehensive bioprocessing portfolio, Repligen (NASDAQ: RGEN) develops and manufactures specialized technologies that improve the efficiency and flexibility of biological drug manufacturing processes.

Why Do We Think RGEN Will Underperform?

1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 16.9 percentage points
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

At $124 per share, Repligen trades at 65.6x forward P/E. Dive into our free research report to see why there are better opportunities than RGEN.

Stocks We Like More

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