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 are three companies with net cash positions to avoid and some better alternatives instead.
Marcus & Millichap (MMI)
Net Cash Position: $123.8 million (10.6% of Market Cap)
Founded in 1971, Marcus & Millichap (NYSE: MMI) specializes in commercial real estate investment sales, financing, research, and advisory services.
Why Should You Sell MMI?
- Lackluster 1.9% annual revenue growth over the last five years indicates the company is losing ground to competitors
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Marcus & Millichap is trading at $30.78 per share, or 72.6x forward P/E. If you’re considering MMI for your portfolio, see our FREE research report to learn more.
Hudson Technologies (HDSN)
Net Cash Position: $14.1 million (5.5% of Market Cap)
Founded in 1991, Hudson Technologies (NASDAQ: HDSN) specializes in refrigerant services and solutions, providing refrigerant sales, reclamation, and recycling.
Why Is HDSN Risky?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 4.7% annually over the last two years
- Diminishing returns on capital suggest its earlier profit pools are drying up
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Hudson Technologies’s stock price of $5.98 implies a valuation ratio of 8.5x forward EV-to-EBITDA. To fully understand why you should be careful with HDSN, check out our full research report (it’s free).
SolarEdge (SEDG)
Net Cash Position: $137.3 million (4.6% of Market Cap)
Established in 2006, SolarEdge (NASDAQ: SEDG) creates advanced systems to improve the efficiency of solar panels.
Why Do We Pass on SEDG?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.3% annually over the last five years
- Cash burn makes us question whether it can achieve sustainable long-term growth
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $48.77 per share, SolarEdge trades at 91x forward P/E. Dive into our free research report to see why there are better opportunities than SEDG.
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