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 two companies with net cash positions that can leverage their balance sheets to grow and one best left off your watchlist.
One Stock to Sell:
Insteel (IIIN)
Net Cash Position: $51.82 million (7.2% of Market Cap)
Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE: IIIN) provides steel wire reinforcing products for concrete.
Why Is IIIN Not Exciting?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 7% annually over the last two years
- Earnings per share decreased by more than its revenue over the last two years, showing each sale was less profitable
- Waning returns on capital imply its previous profit engines are losing steam
Insteel is trading at $36.63 per share, or 14.3x forward P/E. If you’re considering IIIN for your portfolio, see our FREE research report to learn more.
Two Stocks to Watch:
Paycom (PAYC)
Net Cash Position: $439.3 million (3.4% of Market Cap)
Founded in 1998 as one of the first online payroll companies, Paycom (NYSE: PAYC) provides software for small and medium-sized businesses (SMBs) to manage their payroll and HR needs in one place.
Why Does PAYC Stand Out?
- Superior software functionality and low servicing costs result in a best-in-class gross margin of 85.9%
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Healthy operating margin of 27.9% shows it’s a well-run company with efficient processes
Paycom’s stock price of $235.60 implies a valuation ratio of 6.3x forward price-to-sales. Is now a good time to buy? See for yourself in our full research report, it’s free.
MACOM (MTSI)
Net Cash Position: $181 million (1.8% of Market Cap)
Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.
Why Are We Positive On MTSI?
- Market share has increased this cycle as its 9.9% annual revenue growth over the last two years was exceptional
- Demand for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust revenue growth of 21.6%
- Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 81.7% annually
At $139.49 per share, MACOM trades at 36.4x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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