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. Keeping that in mind, here are three companies with net cash positions that don’t make the cut and some better choices instead.
Varonis Systems (VRNS)
Net Cash Position: $274.7 million (7.2% of Market Cap)
Beginning with protecting Windows file shares in 2005 and evolving into a comprehensive security platform, Varonis Systems (NASDAQ: VRNS) provides data security software that helps organizations protect sensitive information, detect threats, and comply with privacy regulations.
Why Do We Think VRNS Will Underperform?
- 16.1% annual revenue growth over the last five years was slower than its software peers
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 2.5 percentage points
Varonis Systems is trading at $40.96 per share, or 6.1x forward price-to-sales. If you’re considering VRNS for your portfolio, see our FREE research report to learn more.
First Bancorp (FBNC)
Net Cash Position: $491 million (19.4% of Market Cap)
Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ: FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.
Why Does FBNC Give Us Pause?
- Sales trends were unexciting over the last two years as its 2% annual growth was below the typical banking company
- Estimated net interest income growth of 4.4% for the next 12 months implies demand will slow from its five-year trend
- Incremental sales over the last two years were less profitable as its earnings per share were flat while its revenue grew
At $63.94 per share, First Bancorp trades at 1.6x forward P/B. Dive into our free research report to see why there are better opportunities than FBNC.
Expro (XPRO)
Net Cash Position: $9.66 million (0.5% of Market Cap)
Operating in over 50 countries from deepwater offshore platforms to remote onshore fields, Expro (NYSE: XPRO) provides equipment and services that help oil and gas companies drill wells, measure production, and maintain well integrity.
Why Are We Hesitant About XPRO?
- Subscale operations are evident in its revenue base of $1.58 billion, meaning it has fewer distribution channels than its larger rivals
- Costly operations and weak unit economics result in an inferior gross margin of 20% that must be offset through higher production volumes
- Poor free cash flow margin of 1.3% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Expro’s stock price of $14.77 implies a valuation ratio of 13.3x forward P/E. To fully understand why you should be careful with XPRO, check out our full research report (it’s free).
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