A cash-heavy balance sheet is often a sign of strength, but not always. Some companies avoid debt because they have weak business models, limited expansion opportunities, or inconsistent cash flow.
Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
MasterCraft (MCFT)
Net Cash Position: $42.06 million (8.7% of Market Cap)
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Do We Steer Clear of MCFT?
- Products and services aren’t resonating with the market as its revenue declined by 7.9% annually over the last five years
- Free cash flow margin is expected to remain in place over the coming year
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
MasterCraft is trading at $19.84 per share, or 10.2x forward P/E. Read our free research report to see why you should think twice about including MCFT in your portfolio.
Old Republic International (ORI)
Net Cash Position: $366.8 million (4.1% of Market Cap)
Founded during the Roaring Twenties in 1923 and weathering nearly a century of economic cycles, Old Republic International (NYSE: ORI) is a diversified insurance holding company that provides property, liability, title, and mortgage guaranty insurance through its various subsidiaries.
Why Is ORI Risky?
- Muted 1.6% annual revenue growth over the last five years shows its demand lagged behind its insurance peers
- Growth in insurance policies was lackluster over the last five years as its 2.7% annual growth underperformed the typical financial institution
- Performance over the past two years shows its incremental sales were less profitable, as its 2.1% annual earnings per share growth trailed its revenue gains
At $37.50 per share, Old Republic International trades at 1.5x forward P/B. If you’re considering ORI for your portfolio, see our FREE research report to learn more.
Centrus Energy (LEU)
Net Cash Position: $652.1 million (22.9% of Market Cap)
Operating the only active U.S. facility licensed to produce high-assay low-enriched uranium (HALEU) for next-generation reactors, Centrus Energy (NYSE: LEU) supplies enriched uranium, the fissile component needed to produce fuel for nuclear power reactors.
Why Are We Bearish on LEU?
- Modest revenue base of $473.9 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- High extraction costs and unfavorable asset economics are reflected in its low gross margin of 32.3%
- Day-to-day expenses have swelled relative to revenue over the last five years as its EBITDA margin fell by 46.1 percentage points
Centrus Energy’s stock price of $139.50 implies a valuation ratio of 41.4x forward P/E. Check out our free in-depth research report to learn more about why LEU doesn’t pass our bar.
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