A cash-heavy balance sheet is often a sign of strength, but not always. Some companies avoid debt because they have weak business models, limited expansion opportunities, or inconsistent cash flow.
Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. That said, here are three companies with net cash positions to avoid and some better alternatives instead.
Stratasys (SSYS)
Net Cash Position: $223.5 million (26.8% of Market Cap)
Born from the Founder’s idea of making a toy frog with a glue gun, Stratasys (NASDAQ: SSYS) offers 3D printers and related materials, software, and services to many industries.
Why Do We Avoid SSYS?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Poor expense management has led to operating margin losses
- Cash-burning history makes us doubt the long-term viability of its business model
Stratasys’s stock price of $9.83 implies a valuation ratio of 26.5x forward P/E. To fully understand why you should be careful with SSYS, check out our full research report (it’s free).
Omnicell (OMCL)
Net Cash Position: $57.21 million (3.9% of Market Cap)
Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ: OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.
Why Should You Dump OMCL?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.5% annually over the last two years
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 6.1% annually
- 13.1 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Omnicell is trading at $32.46 per share, or 22x forward P/E. If you’re considering OMCL for your portfolio, see our FREE research report to learn more.
Clover Health (CLOV)
Net Cash Position: $201.3 million (12.8% of Market Cap)
Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ: CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.
Why Is CLOV Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 18.1% annually over the last two years
- Smaller revenue base of $1.61 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Cash burn makes us question whether it can achieve sustainable long-term growth
At $3.07 per share, Clover Health trades at 21.8x forward P/E. Read our free research report to see why you should think twice about including CLOV in your portfolio.
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