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. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
Zoom (ZM)
Net Cash Position: $7.69 billion (28.4% of Market Cap)
Once the verb that defined remote work during the pandemic ("let's Zoom later"), Zoom (NASDAQ: ZM) provides a cloud-based platform for video meetings, phone calls, team chat, and collaboration tools that helps businesses and individuals connect virtually.
Why Do We Avoid ZM?
- Average billings growth of 4.8% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Competitive market dynamics make it difficult to retain customers, leading to a weak 98.3% net revenue retention rate
- Projected sales growth of 4.2% for the next 12 months suggests sluggish demand
Zoom’s stock price of $92.28 implies a valuation ratio of 5.3x forward price-to-sales. Check out our free in-depth research report to learn more about why ZM doesn’t pass our bar.
Scholastic (SCHL)
Net Cash Position: $7.7 million (1% of Market Cap)
Creator of the legendary Scholastic Book Fair, Scholastic (NASDAQ: SCHL) is an international company specializing in children's publishing, education, and media services.
Why Is SCHL Risky?
- Annual revenue growth of 4% over the last five years was below our standards for the consumer discretionary sector
- Capital intensity will likely increase as its free cash flow margin is anticipated to drop by 25.6 percentage points over the next year
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
At $41.05 per share, Scholastic trades at 23.6x forward P/E. Read our free research report to see why you should think twice about including SCHL in your portfolio.
First Busey (BUSE)
Net Cash Position: $250 million (9.8% of Market Cap)
Tracing its roots back to 1868 during America's post-Civil War reconstruction era, First Busey (NASDAQ: BUSE) is a bank holding company that provides commercial and retail banking, wealth management, and payment technology solutions across Illinois, Missouri, Florida, and Indiana.
Why Does BUSE Give Us Pause?
- Weak unit economics are reflected in its net interest margin of 3.5%, one of the worst among bank companies
- Annual earnings per share growth of 1.6% underperformed its revenue over the last five years, showing its incremental sales were less profitable
- Estimated tangible book value per share decline of 2.9% for the next 12 months implies a challenging profitability environment
First Busey is trading at $31.06 per share, or 1.1x forward P/B. To fully understand why you should be careful with BUSE, check out our full research report (it’s free).
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