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 to steer clear of and a few alternatives to consider.
Teradyne (TER)
Net Cash Position: $38.76 million (0.1% of Market Cap)
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ: TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Why Does TER Fall Short?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 2.9% annually
- Free cash flow margin shrank by 12 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Teradyne’s stock price of $292.87 implies a valuation ratio of 47.6x forward P/E. If you’re considering TER for your portfolio, see our FREE research report to learn more.
The New York Times (NYT)
Net Cash Position: $629.6 million (4.7% of Market Cap)
Founded in 1851, The New York Times (NYSE: NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
Why Should You Dump NYT?
- Sluggish trends in its subscribers suggest customers aren’t adopting its solutions as quickly as the company hoped
- Poor expense management has led to an operating margin of 14.5% that is below the industry average
- Unchanged returns on capital make it difficult for the company’s valuation multiple to re-rate
The New York Times is trading at $83.26 per share, or 30.2x forward P/E. Check out our free in-depth research report to learn more about why NYT doesn’t pass our bar.
MasterCraft (MCFT)
Net Cash Position: $79.64 million (23.5% of Market Cap)
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Do We Think MCFT Will Underperform?
- Annual revenue declines of 4.7% over the last five years indicate problems with its market positioning
- Projected 2.7 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
At $20.84 per share, MasterCraft trades at 13.3x forward P/E. Dive into our free research report to see why there are better opportunities than MCFT.
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