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.
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.
Deckers (DECK)
Net Cash Position: $1.13 billion (8.5% of Market Cap)
Established in 1973, Deckers (NYSE: DECK) is a footwear and apparel conglomerate with a portfolio of lifestyle and performance brands.
Why Do We Steer Clear of DECK?
- Weak constant currency growth over the past two years indicates challenges in maintaining its market share
- Poor expense management has led to an operating margin of 23.2% that is below the industry average
- Poor free cash flow margin of 18.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Deckers is trading at $98.42 per share, or 12.6x forward P/E. Check out our free in-depth research report to learn more about why DECK doesn’t pass our bar.
The Real Brokerage (REAX)
Net Cash Position: $99.73 million (26% of Market Cap)
Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.
Why Are We Bearish on REAX?
- Subpar operating margin of -0.6% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Earnings per share lagged its peers over the last four years as they only grew by 8.5% annually
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 3.3% for the last two years
The Real Brokerage’s stock price of $1.76 implies a valuation ratio of 3.5x forward EV-to-EBITDA. To fully understand why you should be careful with REAX, check out our full research report (it’s free).
agilon health (AGL)
Net Cash Position: $201.4 million (12.3% of Market Cap)
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Are We Hesitant About AGL?
- Customer growth was choppy over the past two years, suggesting that increasing competition is causing challenges in landing new contracts
- Sales are projected to remain flat over the next 12 months as demand decelerates from its two-year trend
- Negative free cash flow raises questions about the return timeline for its investments
At $98.46 per share, agilon health trades at 79.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than AGL.
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