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.
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 is one company with a net cash position that can leverage its balance sheet to grow and two that may struggle.
Two Stocks to Sell:
Employers Holdings (EIG)
Net Cash Position: $80.5 million (10.1% of Market Cap)
With roots in Nevada and a strong concentration in California where 45% of its premiums are generated, Employers Holdings (NYSE: EIG) is a specialty provider of workers' compensation insurance focused on small and select businesses engaged in low-to-medium hazard industries across the United States.
Why Is EIG Risky?
- Growth in insurance policies was lackluster over the last two years as its 1.7% annual growth underperformed the typical financial institution
- Costs have risen faster than its revenue over the last five years, causing its pre-tax profit margin to decline by 28.5 percentage points
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 29.6% annually while its revenue grew
At $43.76 per share, Employers Holdings trades at 0.9x forward P/B. To fully understand why you should be careful with EIG, check out our full research report (it’s free).
First Financial Bankshares (FFIN)
Net Cash Position: $993.2 million (21.7% of Market Cap)
With roots dating back to 1890 and a network spanning over 70 locations across the Lone Star State, First Financial Bankshares (NASDAQ: FFIN) is a Texas-focused regional bank providing commercial banking, trust services, and wealth management across numerous communities throughout the state.
Why Does FFIN Fall Short?
- Muted 5.3% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Net interest income trends were unexciting over the last five years as its 7.4% annual growth was below the typical banking firm
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 4.7% annually
First Financial Bankshares’s stock price of $32.18 implies a valuation ratio of 2.2x forward P/B. Dive into our free research report to see why there are better opportunities than FFIN.
One Stock to Buy:
CLEAR Secure (YOU)
Net Cash Position: $800.1 million (13% of Market Cap)
Recognized by its signature blue lanes and biometric pods at airport checkpoints across America, CLEAR Secure (NYSE: YOU) provides biometric identity verification technology that allows subscribers to bypass regular security lines at airports and access secure experiences at various venues.
Why Are We Bullish on YOU?
- Annual revenue growth of 33.8% over the past five years was outstanding, reflecting market share gains
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
- YOU is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
CLEAR Secure is trading at $61.84 per share, or 5.6x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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