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.
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 avoid and some better alternatives instead.
Sprout Social (SPT)
Net Cash Position: $31.32 million (4.8% of Market Cap)
Born from the recognition that businesses needed a centralized way to handle their growing social media presence, Sprout Social (NASDAQ: SPT) provides a comprehensive software platform that helps businesses manage, analyze, and optimize their presence across various social media networks.
Why Is SPT Not Exciting?
- Products, pricing, or go-to-market strategy may need some adjustments as its 11.1% average billings growth over the last year was weak
- Estimated sales growth of 11% for the next 12 months implies demand will slow from its two-year trend
- Track record of operating margin losses stem from its decision to pursue growth instead of profits
Sprout Social’s stock price of $10.99 implies a valuation ratio of 1.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SPT.
Littelfuse (LFUS)
Net Cash Position: $9.25 million (0.1% of Market Cap)
The developer of the first blade-type automotive fuse, Littelfuse (NASDAQ: LFUS) provides electrical protection and control components for the automotive, industrial, electronics, and telecommunications industries.
Why Are We Hesitant About LFUS?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.5% annually over the last two years
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
Littelfuse is trading at $260.24 per share, or 21.4x forward P/E. To fully understand why you should be careful with LFUS, check out our full research report (it’s free for active Edge members).
Plexus (PLXS)
Net Cash Position: $168.7 million (4.1% of Market Cap)
With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.
Why Are We Wary of PLXS?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.1% annually over the last two years
- Low free cash flow margin of 2.7% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $154.03 per share, Plexus trades at 20.9x forward P/E. Read our free research report to see why you should think twice about including PLXS in your portfolio.
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