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.
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 steer clear of and a few alternatives to consider.
Wix (WIX)
Net Cash Position: $115 million (1.8% of Market Cap)
Founded in 2006 in Tel Aviv, Wix.com (NASDAQ:WIX) offers a free and easy to operate website building platform.
Why Is WIX Not Exciting?
- Revenue increased by 11.7% annually over the last three years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Gross margin of 68.4% reflects its relatively high servicing costs
Wix’s stock price of $116.21 implies a valuation ratio of 3.2x forward price-to-sales. If you’re considering WIX for your portfolio, see our FREE research report to learn more.
NetApp (NTAP)
Net Cash Position: $611 million (2.9% of Market Cap)
Founded in 1992 as a pioneer in networked storage technology, NetApp (NASDAQ:NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.
Why Are We Cautious About NTAP?
- Sales trends were unexciting over the last two years as its 1.6% annual growth was below the typical business services company
- Customers had second thoughts about committing to its products over the past two years as its average billings growth of 3% underwhelmed
- Anticipated sales growth of 2.9% for the next year implies demand will be shaky
At $106.92 per share, NetApp trades at 13.8x forward P/E. Read our free research report to see why you should think twice about including NTAP in your portfolio.
Westamerica Bancorporation (WABC)
Net Cash Position: $424 million (35% of Market Cap)
Founded in 1884 and serving communities from Mendocino County in the north to Kern County in the south, Westamerica Bancorporation (NASDAQ:WABC) provides banking services to individuals and small businesses throughout Northern and Central California.
Why Does WABC Fall Short?
- Annual net interest income growth of 6.5% over the last five years was below our standards for the banking sector
- Net interest income is projected to tank by 8.9% over the next 12 months as demand evaporates
- Projected 2.8 percentage point efficiency ratio increase over the next year signals it will struggle to adjust its fixed costs as sales fall
Westamerica Bancorporation is trading at $48.46 per share, or 1.3x forward P/B. Dive into our free research report to see why there are better opportunities than WABC.
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