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.
EverQuote (EVER)
Net Cash Position: $190.4 million (27.9% of Market Cap)
Aiming to simplify a once complicated process, EverQuote (NASDAQ: EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers
Why Does EVER Give Us Pause?
- Excessive marketing spend signals little organic demand and traction for its platform
At $19.38 per share, EverQuote trades at 4.1x forward EV/EBITDA. Check out our free in-depth research report to learn more about why EVER doesn’t pass our bar.
Inspire Medical Systems (INSP)
Net Cash Position: $262.5 million (13.5% of Market Cap)
Offering an alternative for the millions who struggle with traditional CPAP machines, Inspire Medical Systems (NYSE: INSP) develops and sells an implantable neurostimulation device that treats obstructive sleep apnea by stimulating nerves to keep airways open during sleep.
Why Do We Think Twice About INSP?
- Revenue base of $898.7 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Estimated sales decline of 3.5% for the next 12 months implies a challenging demand environment
Inspire Medical Systems’s stock price of $67.46 implies a valuation ratio of 50.2x forward P/E. If you’re considering INSP for your portfolio, see our FREE research report to learn more.
Lincoln Financial Group (LNC)
Net Cash Position: $3.3 billion (42% of Market Cap)
Founded in 1905 by a group of Fort Wayne, Indiana businessmen who named the company after Abraham Lincoln, Lincoln National Corporation (NYSE: LNC) provides insurance, retirement plans, and wealth management products through its subsidiaries, operating under four main segments: Annuities, Life Insurance, Group Protection, and Retirement Plan Services.
Why Does LNC Worry Us?
- Net premiums earned remained stagnant over the last five years, indicating expansion challenges this cycle
- Earnings per share lagged its peers over the last five years as they only grew by 6.1% annually
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 14% annually over the last five years
Lincoln Financial Group is trading at $40.98 per share, or 0.7x forward P/B. To fully understand why you should be careful with LNC, check out our full research report (it’s free).
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