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. That said, here are three companies with net cash positions that don’t make the cut and some better choices instead.
IPG Photonics (IPGP)
Net Cash Position: $871.3 million (27.7% of Market Cap)
Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.
Why Do We Pass on IPGP?
- Sales tumbled by 4.9% annually over the last five years, showing market trends are working against it during this cycle
- Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
IPG Photonics is trading at $73.38 per share, or 35.3x forward P/E. If you’re considering IPGP for your portfolio, see our FREE research report to learn more.
Strategic Education (STRA)
Net Cash Position: $22.04 million (1.3% of Market Cap)
Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ: STRA) is a career-focused higher education provider.
Why Do We Think STRA Will Underperform?
- Number of domestic students has disappointed over the past two years, indicating weak demand for its offerings
- Earnings per share lagged its peers over the last five years as they only grew by 3% annually
- Free cash flow margin is projected to show no improvement next year
Strategic Education’s stock price of $79.58 implies a valuation ratio of 10x forward P/E. Dive into our free research report to see why there are better opportunities than STRA.
LeMaitre (LMAT)
Net Cash Position: $186 million (9.7% of Market Cap)
Founded in 1983 and named after a pioneering vascular surgeon, LeMaitre Vascular (NASDAQGM:LMAT) develops and manufactures specialized medical devices used by vascular surgeons to treat peripheral vascular disease and other circulatory conditions.
Why Does LMAT Give Us Pause?
- Modest revenue base of $262.4 million gives it less fixed cost leverage and fewer distribution channels than larger companies
At $83.69 per share, LeMaitre trades at 27.3x forward P/E. Check out our free in-depth research report to learn more about why LMAT doesn’t pass our bar.
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