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.
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 that don’t make the cut and some better choices instead.
Movado (MOV)
Net Cash Position: $153 million (24.9% of Market Cap)
With its watches displayed in 20 museums around the world, Movado (NYSE: MOV) is a watchmaking company with a portfolio of watch brands and accessories.
Why Is MOV Risky?
- Annual revenue growth of 3.6% over the last five years was below our standards for the consumer discretionary sector
- Poor free cash flow margin of 5.2% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $38.23 per share, Movado trades at 12x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than MOV.
West Pharmaceutical Services (WST)
Net Cash Position: $212 million (0.9% of Market Cap)
Founded in 1923 and serving as a critical link in the pharmaceutical supply chain, West Pharmaceutical Services (NYSE: WST) manufactures specialized packaging, containment systems, and delivery devices for injectable drugs and healthcare products.
Why Does WST Worry Us?
- Annual revenue growth of 5.7% over the last five years was below our standards for the healthcare sector
- Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 5.3 percentage points
- Eroding returns on capital suggest its historical profit centers are aging
West Pharmaceutical Services is trading at $339.52 per share, or 36.4x forward P/E. Read our free research report to see why you should think twice about including WST in your portfolio.
Insperity (NSP)
Net Cash Position: $141 million (6.8% of Market Cap)
Pioneering the professional employer organization (PEO) industry it helped establish, Insperity (NYSE: NSP) provides human resources outsourcing services to small and medium-sized businesses, handling payroll, benefits, compliance, and HR administration.
Why Do We Pass on NSP?
- Annual revenue growth of 2.5% over the last two years was below our standards for the business services sector
- Earnings per share fell by 27.1% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin dropped by 4.3 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Insperity’s stock price of $54.01 implies a valuation ratio of 23.8x forward P/E. To fully understand why you should be careful with NSP, check out our full research report (it’s free).
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