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.
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 is one company with a net cash position that balances growth with stability and two with hidden risks.
Two Stocks to Sell:
BILL (BILL)
Net Cash Position: $354.4 million (7.9% of Market Cap)
Transforming the messy back-office financial operations that plague small business owners, BILL (NYSE: BILL) provides a cloud-based platform that automates accounts payable, accounts receivable, and expense management for small and midsize businesses.
Why Do We Pass on BILL?
- Offerings struggled to generate meaningful interest as its average billings growth of 11.7% over the last year did not impress
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Static operating margin over the last year shows it couldn’t become more efficient
At $45.05 per share, BILL trades at 2.5x forward price-to-sales. To fully understand why you should be careful with BILL, check out our full research report (it’s free).
Lennar (LEN)
Net Cash Position: $6.19 billion (24.1% of Market Cap)
One of the largest homebuilders in America, Lennar (NYSE: LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.
Why Are We Out on LEN?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 15.1% decline in its backlog
- Free cash flow margin dropped by 9 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
Lennar is trading at $105.17 per share, or 15.9x forward P/E. If you’re considering LEN for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
JFrog (FROG)
Net Cash Position: $692 million (14.1% of Market Cap)
Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ: FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.
Why Is FROG a Top Pick?
- Ability to secure long-term commitments with customers is evident in its 23.6% ARR growth over the last year
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
- Robust free cash flow margin of 26.8% gives it many options for capital deployment
JFrog’s stock price of $41.52 implies a valuation ratio of 7.4x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
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