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.
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. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
Zillow (ZG)
Net Cash Position: $354 million (4.7% of Market Cap)
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.
Why Should You Dump ZG?
- Annual revenue declines of 4.7% over the last five years indicate problems with its market positioning
- Earnings per share lagged its peers over the last five years as they only grew by 10.6% annually
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Zillow’s stock price of $32.17 implies a valuation ratio of 13.1x forward P/E. To fully understand why you should be careful with ZG, check out our full research report (it’s free).
Leonardo DRS (DRS)
Net Cash Position: $177 million (1.3% of Market Cap)
Developing submarine detection systems for the U.S. Navy, Leonardo DRS (NASDAQ: DRS) is a provider of defense systems, electronics, and military support services.
Why Do We Think Twice About DRS?
- Annual revenue growth of 5.1% over the last five years was below our standards for the industrials sector
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 1.1% declines over the past two years
- Waning returns on capital imply its previous profit engines are losing steam
At $44.74 per share, Leonardo DRS trades at 35.1x forward P/E. If you’re considering DRS for your portfolio, see our FREE research report to learn more.
10x Genomics (TXG)
Net Cash Position: $458.5 million (12.4% of Market Cap)
Founded in 2012 by scientists seeking to overcome limitations in traditional biological research methods, 10x Genomics (NASDAQ: TXG) develops instruments, consumables, and software that enable researchers to analyze biological systems at single-cell resolution and spatial context.
Why Do We Steer Clear of TXG?
- 1.1% annual revenue growth over the last two years was slower than its healthcare peers
- Subscale operations are evident in its revenue base of $638.8 million, meaning it has fewer distribution channels than its larger rivals
- Negative returns on capital show that some of its growth strategies have backfired
10x Genomics is trading at $37.99 per share, or 7.8x forward price-to-sales. Dive into our free research report to see why there are better opportunities than TXG.
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