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.
Financial flexibility is valuable, but it’s not everything - at StockStory, we help you find the stocks that can not only survive but also outperform. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
Q2 Holdings (QTWO)
Net Cash Position: $34.99 million (1.3% of Market Cap)
With a platform powering digital services for approximately 25 million account holders across America, Q2 Holdings (NYSE: QTWO) provides cloud-based digital solutions that help financial institutions, fintechs, and alternative finance companies deliver modern banking experiences to their customers.
Why Does QTWO Fall Short?
- Average billings growth of 11% 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 9.5% for the next 12 months implies demand will slow from its two-year trend
- Gross margin of 55.6% reflects its high servicing costs
Q2 Holdings’s stock price of $53.42 implies a valuation ratio of 4x forward price-to-sales. Read our free research report to see why you should think twice about including QTWO in your portfolio.
Figs (FIGS)
Net Cash Position: $216.4 million (11.5% of Market Cap)
Rising to fame via TikTok and founded in 2013 by Heather Hasson and Trina Spear, Figs (NYSE: FIGS) is a healthcare apparel company known for its stylish approach to medical attire and uniforms.
Why Do We Steer Clear of FIGS?
- Sluggish trends in its active customers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 8.2% for the last two years
At $10.24 per share, Figs trades at 35.6x forward P/E. Check out our free in-depth research report to learn more about why FIGS doesn’t pass our bar.
Korn Ferry (KFY)
Net Cash Position: $707.7 million (18.6% of Market Cap)
With clients including 97% of the S&P 100 and operations in 103 offices across 51 countries, Korn Ferry (NYSE: KFY) is a global consulting firm that helps organizations design optimal structures, recruit talent, develop leaders, and create effective compensation strategies.
Why Do We Think Twice About KFY?
- Sales trends were unexciting over the last two years as its 2.5% annual growth was below the typical business services company
- 6.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital suggest its historical profit centers are aging
Korn Ferry is trading at $71.10 per share, or 12.1x forward P/E. Dive into our free research report to see why there are better opportunities than KFY.
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