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 steer clear of and a few alternatives to consider.
UFP Industries (UFPI)
Net Cash Position: $669.5 million (11% of Market Cap)
Beginning as a lumber supplier in the 1950s, UFP Industries (NASDAQ: UFPI) is a holding company making building materials for the construction, retail, and industrial sectors.
Why Does UFPI Worry Us?
- Declining unit sales over the past two years indicate demand is soft and that the company may need to revise its strategy
- Earnings per share have dipped by 21.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term
- Eroding returns on capital suggest its historical profit centers are aging
UFP Industries’s stock price of $99.93 implies a valuation ratio of 13.9x forward P/E. To fully understand why you should be careful with UFPI, check out our full research report (it’s free).
Chemed (CHE)
Net Cash Position: $28.82 million (0.3% of Market Cap)
With a unique business model combining end-of-life care and household services, Chemed (NYSE: CHE) operates two distinct businesses: VITAS, which provides hospice care for terminally ill patients, and Roto-Rooter, which offers plumbing and water restoration services.
Why Are We Wary of CHE?
- Sales trends were unexciting over the last five years as its 4.6% annual growth was below the typical healthcare company
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.9 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $577.99 per share, Chemed trades at 22.1x forward P/E. Dive into our free research report to see why there are better opportunities than CHE.
Clover Health (CLOV)
Net Cash Position: $217.1 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?
- Annual sales declines of 37.2% for the past two years show its products and services struggled to connect with the market during this cycle
- Customer additions have disappointed over the past two years, indicating the company’s value proposition may not be resonating
- Cash-burning history makes us doubt the long-term viability of its business model
Clover Health is trading at $3.38 per share, or 36.8x forward EV-to-EBITDA. If you’re considering CLOV for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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