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.
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 avoid and some better alternatives instead.
Revolve (RVLV)
Net Cash Position: $302.4 million (21.9% of Market Cap)
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NYSE: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Should You Dump RVLV?
- May need to improve its platform and marketing strategy as its 5.8% average growth in active customers underwhelmed
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
- Earnings growth over the last three years fell short of the peer group average as its EPS only increased by 7.5% annually
Revolve is trading at $19.27 per share, or 10.6x forward EV/EBITDA. To fully understand why you should be careful with RVLV, check out our full research report (it’s free).
Amplitude (AMPL)
Net Cash Position: $171.8 million (16.7% of Market Cap)
Born from the realization that companies were flying blind when it came to understanding user behavior in their digital products, Amplitude (NASDAQ: AMPL) provides a digital analytics platform that helps businesses understand how people use their digital products to improve user experiences and drive revenue growth.
Why Does AMPL Worry Us?
- Struggled to drive increased usage of its software, demonstrated by its subpar 103% net revenue retention rate
- Poor expense management has led to operating margin losses
- Poor free cash flow margin of 5.5% for the last year limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Amplitude’s stock price of $7.76 implies a valuation ratio of 2.6x forward price-to-sales. If you’re considering AMPL for your portfolio, see our FREE research report to learn more.
Strategic Education (STRA)
Net Cash Position: $48.43 million (2.7% of Market Cap)
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ: STRA) is a career-focused higher education provider.
Why Do We Steer Clear of STRA?
- Sluggish trends in its international students suggest customers aren’t adopting its solutions as quickly as the company hoped
- Earnings per share were flat over the last five years while its revenue grew, showing its incremental sales were less profitable
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
At $80.49 per share, Strategic Education trades at 1.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than STRA.
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