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.
Just because a business has cash doesn’t mean it’s a good investment. Luckily, StockStory is here to help you separate the winners from the losers. That said, here are two companies with net cash positions that can leverage their balance sheets to grow and one with hidden risks.
One Stock to Sell:
Visteon (VC)
Net Cash Position: $385 million (12.9% of Market Cap)
Originally spun off from Ford Motor Company in 2000, Visteon (NYSE: VC) designs and manufactures cockpit electronics for vehicles, including digital instrument clusters, displays, infotainment systems, and battery management systems.
Why Are We Hesitant About VC?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last two years
- High input costs result in an inferior gross margin of 12.1% that must be offset through higher volumes
- Earnings per share have contracted by 28.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Visteon’s stock price of $111.74 implies a valuation ratio of 12x forward P/E. Dive into our free research report to see why there are better opportunities than VC.
Two Stocks to Buy:
Shopify (SHOP)
Net Cash Position: $5.59 billion (3.5% of Market Cap)
Starting with just three people selling snowboards online in 2004, Shopify (NASDAQ: SHOP) provides a comprehensive platform that enables merchants of all sizes to create, manage and grow their businesses across multiple sales channels.
Why Will SHOP Beat the Market?
- Billings growth has averaged 30.7% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Expected revenue growth of 27.4% for the next year suggests its market share will rise
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
At $121.60 per share, Shopify trades at 10.7x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
Graham Corporation (GHM)
Net Cash Position: $16.18 million (1.5% of Market Cap)
Founded when its founder patented a unique design for a vacuum system used in the sugar refining process, Graham (NYSE: GHM) provides vacuum and heat transfer equipment for the energy, petrochemical, refining, and chemical sectors.
Why Do We Love GHM?
- Impressive 15% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Earnings per share grew annually over the last one years, massively outpacing its peers
- Free cash flow margin jumped by 15.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
Graham Corporation is trading at $95.20 per share, or 49.7x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
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