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.
Just because a business has cash doesn’t mean it’s a good investment. Luckily, StockStory is here to help you separate the winners from the losers. That said, here are two companies with net cash positions that can leverage their balance sheets to grow and one that may struggle.
One Stock to Sell:
Calavo (CVGW)
Net Cash Position: $33.24 million (7% of Market Cap)
A trailblazer in the avocado industry, Calavo Growers (NASDAQ: CVGW) is a pioneering California-based provider of high-quality avocados and other fresh food products.
Why Are We Out on CVGW?
- Annual sales declines of 18.3% for the past three years show its products struggled to connect with the market
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Gross margin of 10% is an output of its commoditized products
Calavo’s stock price of $26.46 implies a valuation ratio of 17.6x forward P/E. To fully understand why you should be careful with CVGW, check out our full research report (it’s free).
Two Stocks to Watch:
Guidewire Software (GWRE)
Net Cash Position: $307.4 million (2.7% of Market Cap)
With its systems powering the operations of hundreds of insurance brands across 42 countries, Guidewire Software (NYSE: GWRE) provides a technology platform that helps property and casualty insurance companies manage their core operations, digital engagement, and analytics.
Why Are We Fans of GWRE?
- Billings have averaged 20.7% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Well-designed software integrates seamlessly with other workflows, enabling swift payback periods on marketing expenses and customer growth at scale
- Solid free cash flow generation relative to most peers gives it a cushion and grants it various reinvestment opportunities
Guidewire Software is trading at $132.35 per share, or 7.6x forward price-to-sales. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Brady (BRC)
Net Cash Position: $31.59 million (0.7% of Market Cap)
Founded in 1914 and evolving through more than a century of industrial innovation, Brady (NYSE: BRC) manufactures and supplies identification solutions and workplace safety products that help companies identify and protect their premises, products, and people.
Why Are We Positive On BRC?
- 8.3% annual revenue growth over the last two years surpassed the sector average as its services resonated with customers
- Share repurchases over the last five years enabled its annual earnings per share growth of 16.5% to outpace its revenue gains
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its recently improved profitability means it has even more resources to invest or distribute
At $91.84 per share, Brady trades at 17.7x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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