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 are three companies with net cash positions that don’t make the cut and some better choices instead.
DocuSign (DOCU)
Net Cash Position: $815.8 million (5.6% of Market Cap)
Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ: DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.
Why Does DOCU Worry Us?
- Annual revenue growth of 10.8% over the last three years was below our standards for the software sector
- Offerings struggled to generate meaningful interest as its average billings growth of 6.4% over the last year did not impress
- Estimated sales growth of 5.9% for the next 12 months implies demand will slow from its three-year trend
DocuSign’s stock price of $72.85 implies a valuation ratio of 4.8x forward price-to-sales. If you’re considering DOCU for your portfolio, see our FREE research report to learn more.
Plexus (PLXS)
Net Cash Position: $94.67 million (2.6% of Market Cap)
With over 20,000 team members across 26 global facilities, Plexus (NASDAQ: PLXS) designs, manufactures, and services complex electronic products for companies in aerospace/defense, healthcare, and industrial sectors.
Why Are We Wary of PLXS?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.4% annually over the last two years
- Poor free cash flow margin of 2.7% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
- Eroding returns on capital suggest its historical profit centers are aging
Plexus is trading at $136.56 per share, or 18.4x forward P/E. To fully understand why you should be careful with PLXS, check out our full research report (it’s free).
Crane (CR)
Net Cash Position: $285 million (2.5% of Market Cap)
Based in Connecticut, Crane (NYSE: CR) is a diversified manufacturer of engineered industrial products, including fluid handling, and aerospace technologies.
Why Do We Pass on CR?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.1% annually over the last five years
- Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
- Earnings per share fell by 6.7% annually over the last two years while its revenue grew, partly because it diluted shareholders
At $195.67 per share, Crane trades at 33.3x forward P/E. Check out our free in-depth research report to learn more about why CR doesn’t pass our bar.
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