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 is one company with a net cash position that can leverage its balance sheet to grow and two best left off your watchlist.
Two Stocks to Sell:
Okta (OKTA)
Net Cash Position: $2.13 billion (15.2% of Market Cap)
Named after the meteorological measurement for cloud cover, Okta (NASDAQ: OKTA) provides cloud-based identity management solutions that help organizations securely connect their employees, partners, and customers to the right applications and services.
Why Are We Hesitant About OKTA?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 9.8% underwhelmed
- Estimated sales growth of 9% for the next 12 months implies demand will slow from its two-year trend
- Free cash flow margin is forecasted to shrink by 2 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
Okta is trading at $79.17 per share, or 4.5x forward price-to-sales. Read our free research report to see why you should think twice about including OKTA in your portfolio.
Fidelis Insurance (FIHL)
Net Cash Position: $401.4 million (24.8% of Market Cap)
Founded in Bermuda in 2014 and designed to adapt nimbly to evolving market conditions, Fidelis Insurance (NYSE: FIHL) is a global specialty insurance and reinsurance company focused on creating value through strategic capital allocation, expert risk selection and a network of long-term underwriting partnerships.
Why Is FIHL Not Exciting?
- Costs have risen faster than its revenue over the last two years, causing its pre-tax profit margin to decline by 45.9 percentage points
- Performance over the past two years shows its incremental sales were much less profitable, as its earnings per share fell by 4.7% annually
- Annual book value per share growth of 9.3% over the last two years was below our standards for the insurance sector
Fidelis Insurance’s stock price of $18.70 implies a valuation ratio of 0.6x forward P/B. Dive into our free research report to see why there are better opportunities than FIHL.
One Stock to Watch:
Incyte (INCY)
Net Cash Position: $3.55 billion (19.3% of Market Cap)
Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ: INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.
Why Could INCY Be a Winner?
- Impressive 18% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin grew by 7.3 percentage points over the last five years, giving the company more chips to play with
At $92.48 per share, Incyte trades at 12.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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