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 are three companies with net cash positions that don’t make the cut and some better choices instead.
PagerDuty (PD)
Net Cash Position: $145.7 million (10.3% of Market Cap)
Started by three former Amazon engineers, PagerDuty (NYSE: PD) is a software-as-a-service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.
Why Does PD Fall Short?
- Average billings growth of 7% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 6.2% for the next 12 months implies demand will slow from its three-year trend
- Historical operating margin losses point to an inefficient cost structure
At $15.42 per share, PagerDuty trades at 2.8x forward price-to-sales. Check out our free in-depth research report to learn more about why PD doesn’t pass our bar.
Calavo (CVGW)
Net Cash Position: $31.42 million (6.4% of Market Cap)
A trailblazer in the avocado industry, Calavo Growers (NASDAQ: CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.
Why Is CVGW Risky?
- Annual revenue declines of 15.8% over the last three years indicate problems with its market positioning
- Sales are projected to tank by 1.8% over the next 12 months as its demand continues evaporating
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 10.5%
Calavo is trading at $27.67 per share, or 14.5x forward P/E. If you’re considering CVGW for your portfolio, see our FREE research report to learn more.
National Bank Holdings (NBHC)
Net Cash Position: $38.59 million (2.7% of Market Cap)
Operating under familiar local brands like Community Banks of Colorado, Bank Midwest, and Bank of Jackson Hole, National Bank Holdings (NYSE: NBHC) operates regional banks across Colorado, Kansas, Missouri, Wyoming, Texas, and other western states, offering commercial, business, and consumer banking services.
Why Does NBHC Worry Us?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Net interest margin shrank by 24 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Efficiency ratio is expected to worsen by 4.8 percentage points over the next year
National Bank Holdings’s stock price of $37.92 implies a valuation ratio of 1x forward P/B. Check out our free in-depth research report to learn more about why NBHC doesn’t pass our bar.
Stocks We Like More
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