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. That said, here is one company with a net cash position that can continue growing sustainably and two that may struggle.
Two Stocks to Sell:
Graco (GGG)
Net Cash Position: $667.4 million (5.4% of Market Cap)
Founded in 1926, Graco (NYSE: GGG) is an industrial company specializing in the development and manufacturing of fluid-handling systems and products.
Why Do We Think Twice About GGG?
- Sales trends were unexciting over the last two years as its 2.1% annual growth was below the typical industrials company
- Flat earnings per share over the last two years lagged its peers
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Graco is trading at $74.99 per share, or 23.4x forward P/E. To fully understand why you should be careful with GGG, check out our full research report (it’s free).
Insteel (IIIN)
Net Cash Position: $13.41 million (2.4% of Market Cap)
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Is IIIN Not Exciting?
- Annual revenue growth of 5.9% over the last five years was below our standards for the industrials sector
- Free cash flow margin dropped by 5 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital suggest its historical profit centers are aging
At $29.98 per share, Insteel trades at 16.6x forward P/E. If you’re considering IIIN for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Robinhood (HOOD)
Net Cash Position: $2.50 billion (3% of Market Cap)
With a mission to democratize finance, Robinhood (NASDAQ: HOOD) is an online consumer finance platform known for its commission-free stock and crypto trading.
Why Do We Love HOOD?
- Customer spending is rising as the company has focused on monetization over the last two years, leading to 143% annual growth in its average revenue per user
- Additional sales over the last three years increased its profitability as the 95.7% annual growth in its earnings per share outpaced its revenue
- Strong free cash flow margin of 51.2% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
Robinhood’s stock price of $98.89 implies a valuation ratio of 32.7x forward EV/EBITDA. Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
High-Quality Stocks for All Market Conditions
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