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.
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. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
Twilio (TWLO)
Net Cash Position: $1.59 billion (4.2% of Market Cap)
Known for the clever "Twilio Magic" demo that had developers creating functioning communications apps in minutes, Twilio (NYSE:TWLO) provides a platform that enables businesses to communicate with their customers through voice, messaging, email, and other digital channels.
Why Does TWLO Worry Us?
- 14.7% annual revenue growth over the last two years was slower than its software peers
- Sky-high servicing costs result in an inferior gross margin of 48.6% that must be offset through increased usage
- Operating margin expanded by 3.7 percentage points over the last year as it scaled and became more efficient
At $245.92 per share, Twilio trades at 6.5x forward price-to-sales. If you’re considering TWLO for your portfolio, see our FREE research report to learn more.
Expedia (EXPE)
Net Cash Position: $1.44 billion (3.7% of Market Cap)
Originally founded as a part of Microsoft, Expedia (NASDAQ:EXPE) is one of the world’s leading online travel agencies.
Why Does EXPE Fall Short?
- Decision to emphasize platform growth over monetization has contributed to sluggish trends in its average revenue per booking
- Estimated sales growth of 6.3% for the next 12 months implies demand will slow from its three-year trend
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
Expedia’s stock price of $326.18 implies a valuation ratio of 8.8x forward EV/EBITDA. To fully understand why you should be careful with EXPE, check out our full research report (it’s free).
The Marzetti Company (MZTI)
Net Cash Position: $181.2 million (5.7% of Market Cap)
Known for its frozen garlic bread and Parkerhouse rolls, The Marzetti Company (NASDAQ:MZTI) sells bread, dressing, and dips to the retail and food service channels.
Why Do We Think Twice About MZTI?
- Muted 1.8% annual revenue growth over the last three years shows its demand lagged behind its consumer staples peers
- Subscale operations are evident in its revenue base of $1.92 billion, meaning it has fewer distribution channels than its larger rivals
- Commoditized products, bad unit economics, and high competition are reflected in its low gross margin of 23.5%
The Marzetti Company is trading at $115.71 per share, or 16.2x forward P/E. Check out our free in-depth research report to learn more about why MZTI doesn’t pass our bar.
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