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. That said, here are three companies with net cash positions to avoid and some better alternatives instead.
Stratasys (SSYS)
Net Cash Position: $223.9 million (29.3% of Market Cap)
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Should You Dump SSYS?
- Sales tumbled by 5.6% annually over the last two years, showing market trends are working against its favor during this cycle
- Poor expense management has led to operating margin losses
- Free cash flow margin shrank by 6.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Stratasys’s stock price of $9.05 implies a valuation ratio of 46.5x forward P/E. If you’re considering SSYS for your portfolio, see our FREE research report to learn more.
STAAR Surgical (STAA)
Net Cash Position: $137 million (11% of Market Cap)
With over 2.5 million implants performed worldwide, STAAR Surgical (NASDAQ: STAA) designs and manufactures implantable lenses that correct vision problems without removing the eye's natural lens.
Why Do We Pass on STAA?
- Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
- Free cash flow margin dropped by 37.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
At $24.92 per share, STAAR Surgical trades at 47.7x forward P/E. To fully understand why you should be careful with STAA, check out our full research report (it’s free for active Edge members).
East West Bank (EWBC)
Net Cash Position: $1.80 billion (11.5% of Market Cap)
As the largest independent bank in the U.S. focused on bridging financial services between America and Asia, East West Bancorp (NASDAQ: EWBC) operates a commercial bank that provides personal and business banking services with a unique focus on facilitating U.S.-Asia cross-border transactions.
Why Is EWBC Not Exciting?
- Muted 3.6% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- 25.3 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position
- Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
East West Bank is trading at $113.56 per share, or 1.8x forward P/B. Read our free research report to see why you should think twice about including EWBC in your portfolio.
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