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.
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. That said, here is one company with a net cash position that can continue growing sustainably and two that may struggle.
Two Stocks to Sell:
Twilio (TWLO)
Net Cash Position: $1.28 billion (3.7% of Market Cap)
Known for the clever "Twilio Magic" demo that had developers creating functioning communications apps in minutes, Twilio (NYSE: TWLO) provides a platform that enables businesses to communicate with their customers through voice, messaging, email, and other digital channels.
Why Are We Cautious About TWLO?
- Customers generally do not adopt complementary products as its 110% net revenue retention rate lags behind the industry standard
- Sky-high servicing costs result in an inferior gross margin of 48.7% that must be offset through increased usage
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
Twilio’s stock price of $223.20 implies a valuation ratio of 6.3x forward price-to-sales. To fully understand why you should be careful with TWLO, check out our full research report (it’s free).
MasterCraft (MCFT)
Net Cash Position: $82.92 million (15.6% of Market Cap)
Started by a waterskiing instructor, MasterCraft (NASDAQ: MCFT) specializes in designing, manufacturing, and selling sport boats.
Why Should You Dump MCFT?
- Annual revenue declines of 6.7% over the last five years indicate problems with its market positioning
- 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
At $21.98 per share, MasterCraft trades at 12x forward P/E. Read our free research report to see why you should think twice about including MCFT in your portfolio.
One Stock to Watch:
Western Digital (WDC)
Net Cash Position: $1.66 billion (0.9% of Market Cap)
Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Why Do We Like WDC?
- Estimated revenue growth of 40.3% for the next 12 months implies demand will accelerate from its two-year trend
- Operating margin expansion of 17.3 percentage points over the last five years shows the company optimized its expenses
- Free cash flow margin grew by 17.1 percentage points over the last five years, giving the company more chips to play with
Western Digital is trading at $502.00 per share, or 37x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.
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