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.
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 is one company with a net cash position that can continue growing sustainably and two best left off your watchlist.
Two Stocks to Sell:
Coursera (COUR)
Net Cash Position: $787.7 million (78.7% of Market Cap)
Founded by two Stanford University computer science professors, Coursera (NYSE: COUR) is an online learning platform that offers courses, specializations, and degrees from top universities and organizations around the world.
Why Does COUR Give Us Pause?
- Focus on expanding its platform came at the expense of monetization as its average revenue per customer fell by 8.1% annually
- Estimated sales growth of 7.3% 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
At $6.01 per share, Coursera trades at 3.1x forward EV/EBITDA. If you’re considering COUR for your portfolio, see our FREE research report to learn more.
MasterCraft (MCFT)
Net Cash Position: $79.64 million (24.5% of Market Cap)
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Are We Out on MCFT?
- Demand for its offerings was relatively low as its number of boats sold has underwhelmed
- Capital intensity will likely ramp up in the next year as its free cash flow margin is expected to contract by 2.7 percentage points
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
MasterCraft is trading at $19.94 per share, or 12.7x forward P/E. Dive into our free research report to see why there are better opportunities than MCFT.
One Stock to Buy:
ServiceNow (NOW)
Net Cash Position: $3.88 billion (3.3% of Market Cap)
Built on a single code base that processes over 4 billion workflow transactions daily, ServiceNow (NYSE: NOW) provides a cloud-based platform that helps organizations automate and digitize workflows across departments, from IT and HR to customer service and security.
Why Should You Buy NOW?
- Customers view its software as mission-critical to their operations as its ARR has averaged 21% growth over the last year
- Healthy operating margin of 13.7% shows it’s a well-run company with efficient processes, and its profits increased over the last year as it scaled
- Strong free cash flow margin of 34.9% enables it to reinvest or return capital consistently
ServiceNow’s stock price of $112.06 implies a valuation ratio of 7.6x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
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