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.
Financial flexibility is valuable, but it’s not everything - at StockStory, we help you find the stocks that can not only survive but also outperform. Keeping that in mind, here are three companies with net cash positions that don’t make the cut and some better choices instead.
Sprinklr (CXM)
Net Cash Position: $519.3 million (24.3% of Market Cap)
Initially focused only on social media management, Sprinklr (NYSE: CXM) is a leading provider of unified customer experience management software.
Why Is CXM Risky?
- Average billings growth of 4% over the last year was subpar, suggesting it struggled to push its software and might have to lower prices to stimulate demand
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its three-year trend
- Day-to-day expenses have swelled relative to revenue over the last year as its operating margin fell by 3.6 percentage points
Sprinklr’s stock price of $8.35 implies a valuation ratio of 2.5x forward price-to-sales. To fully understand why you should be careful with CXM, check out our full research report (it’s free).
agilon health (AGL)
Net Cash Position: $257.1 million (59.1% of Market Cap)
Transforming how doctors care for seniors by shifting financial incentives from volume to outcomes, agilon health (NYSE: AGL) provides a platform that helps primary care physicians transition to value-based care models for Medicare patients through long-term partnerships and global capitation arrangements.
Why Are We Hesitant About AGL?
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 3.9 percentage points
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative returns on capital show that some of its growth strategies have backfired
At $1.05 per share, agilon health trades at 0.1x forward price-to-sales. If you’re considering AGL for your portfolio, see our FREE research report to learn more.
CoStar (CSGP)
Net Cash Position: $2.92 billion (7.9% of Market Cap)
With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.
Why Is CSGP Not Exciting?
- Earnings per share fell by 3.7% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin shrank by 13.8 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
CoStar is trading at $87.99 per share, or 81.7x forward P/E. Dive into our free research report to see why there are better opportunities than CSGP.
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