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. Keeping that in mind, here is one company with a net cash position that balances growth with stability and two best left off your watchlist.
Two Stocks to Sell:
ACV Auctions (ACVA)
Net Cash Position: $135.6 million (12% of Market Cap)
Founded in 2014, ACV Auctions (NYSE: ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.
Why Do We Think Twice About ACVA?
- High servicing costs result in an inferior gross margin of 27.3% that must be offset through higher volumes
- High marketing expenses suggest it needs to spend heavily on new customer acquisition to sustain momentum
At $6.92 per share, ACV Auctions trades at 13.1x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than ACVA.
Medifast (MED)
Net Cash Position: $152.8 million (125% of Market Cap)
Known for its Optavia program that combines portion-controlled meal replacements with coaching, Medifast (NYSE: MED) has a broad product portfolio of bars, snacks, drinks, and desserts for those looking to lose weight or consume healthier foods.
Why Do We Steer Clear of MED?
- Products have few die-hard fans as sales have declined by 39.1% annually over the last three years
- Smaller revenue base of $346.1 million means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
- Earnings per share have contracted by 28.9% annually over the last three years, a headwind for returns as stock prices often echo long-term EPS performance
Medifast’s stock price of $10.71 implies a valuation ratio of 0.4x forward price-to-sales. Check out our free in-depth research report to learn more about why MED doesn’t pass our bar.
One Stock to Buy:
Texas Pacific Land (TPL)
Net Cash Position: $229.6 million (0.9% of Market Cap)
One of America's largest private landowners with roughly 868,000 acres in the Permian Basin, Texas Pacific Land (NYSE: TPL) owns land in West Texas and earns revenue from oil and gas royalties, water services, and land leases.
Why Should You Buy TPL?
- Impressive 31.3% annual revenue growth over the last ten years indicates it’s winning market share this cycle
- Highly-profitable operating model results in strong unit economics and a best-in-class gross margin of 94.9%
- TPL is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Texas Pacific Land is trading at $391.00 per share, or 30.1x forward EV-to-EBITDA. Is now a good time to buy? Find out in our full research report, it’s free.
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