A surplus of cash can mean financial stability, but it can also indicate a reluctance (or inability) to invest in growth. Some of these companies also face challenges like stagnating revenue, declining market share, or limited scalability.
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 is one company with a net cash position that balances growth with stability and two that may struggle.
Two Stocks to Sell:
The Real Brokerage (REAX)
Net Cash Position: $141.4 million (27.5% of Market Cap)
Founded in Toronto, Canada in 2014, The Real Brokerage (NASDAQ: REAX) is a technology-driven real estate brokerage firm combining a tech-centric model with an agent-centric philosophy.
Why Are We Wary of REAX?
- Subpar operating margin of -0.4% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Poor free cash flow margin of 3.8% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
At $14.16 per share, The Real Brokerage trades at 1.2x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than REAX.
Expro (XPRO)
Net Cash Position: $38.85 million (2.1% of Market Cap)
Operating in over 50 countries from deepwater offshore platforms to remote onshore fields, Expro (NYSE: XPRO) provides equipment and services that help oil and gas companies drill wells, measure production, and maintain well integrity.
Why Does XPRO Fall Short?
- Smaller revenue base of $1.55 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Gross margin of 20.2% is below its competitors, leaving less money to invest in exploration and production
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 2.1% for the last five years
Expro is trading at $16.19 per share, or 12.9x forward P/E. Check out our free in-depth research report to learn more about why XPRO doesn’t pass our bar.
One Stock to Watch:
Matrix Service (MTRX)
Net Cash Position: $228.5 million (77.2% of Market Cap)
Founded in Oklahoma, Matrix Service (NASDAQ: MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.
Why Are We Fans of MTRX?
- Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 49.8% outpaced its revenue gains
- Free cash flow margin expanded by 8.3 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
Matrix Service’s stock price of $10.45 implies a valuation ratio of 17.7x 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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