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.
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 avoid and some better alternatives instead.
nCino (NCNO)
Net Cash Position: $74.4 million (3.7% of Market Cap)
Born from the internal technology needs of a community bank in 2011, nCino (NASDAQ: NCNO) provides cloud-based software that helps financial institutions streamline client onboarding, loan origination, and account opening processes.
Why Do We Think Twice About NCNO?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 10.2% underwhelmed
- Estimated sales growth of 7.9% for the next 12 months implies demand will slow from its two-year trend
- Steep infrastructure costs and weaker unit economics for a software company are reflected in its low gross margin of 60.8%
At $17.59 per share, nCino trades at 3.1x forward price-to-sales. To fully understand why you should be careful with NCNO, check out our full research report (it’s free).
PayPal (PYPL)
Net Cash Position: $80 million (0.2% of Market Cap)
Originally spun off from eBay in 2015 after being acquired by the auction giant in 2002, PayPal (NASDAQ: PYPL) operates a global digital payments platform that enables consumers and merchants to send, receive, and process payments online and in person.
Why Does PYPL Give Us Pause?
- Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.6% over the last two years was below our standards for the financials sector
- Incremental sales over the last two years were less profitable as its 1.8% annual earnings per share growth lagged its revenue gains
PayPal is trading at $50.17 per share, or 9.6x forward P/E. Dive into our free research report to see why there are better opportunities than PYPL.
Customers Bancorp (CUBI)
Net Cash Position: $2.90 billion (113% of Market Cap)
Originally founded with a "high-tech, high-touch" branch-light banking strategy, Customers Bancorp (NYSE: CUBI) is a bank holding company that provides commercial and consumer banking services through its Customers Bank subsidiary, with a focus on business lending and digital banking.
Why Are We Hesitant About CUBI?
- Muted 7.6% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Net interest margin of 3.3% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past two years shows its incremental sales were less profitable, as its 3.1% annual earnings per share growth trailed its revenue gains
Customers Bancorp’s stock price of $76.27 implies a valuation ratio of 1.1x forward P/B. Check out our free in-depth research report to learn more about why CUBI doesn’t pass our bar.
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