Companies with more cash than debt can be financially resilient, but that doesn’t mean they’re all strong investments. Some lack leverage because they struggle to grow or generate consistent profits, making them unattractive borrowers.
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 is one company with a net cash position that can leverage its balance sheet to grow and two best left off your watchlist.
Two Stocks to Sell:
Teradyne (TER)
Net Cash Position: $293.4 million (1.3% of Market Cap)
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ: TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Why Are We Hesitant About TER?
- Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last five years
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 14.4 percentage points
- Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 4.4% annually
At $145.51 per share, Teradyne trades at 37.2x forward P/E. To fully understand why you should be careful with TER, check out our full research report (it’s free for active Edge members).
SmartRent (SMRT)
Net Cash Position: $105 million (38% of Market Cap)
Founded by an employee at a real estate rental company, SmartRent (NYSE: SMRT) provides smart home devices and software for multifamily residential properties, single-family rental homes, and student housing communities.
Why Does SMRT Fall Short?
- Sales tumbled by 13.2% annually over the last two years, showing market trends are working against its favor during this cycle
- Suboptimal cost structure is highlighted by its history of operating margin losses
- Negative free cash flow raises questions about the return timeline for its investments
SmartRent is trading at $1.52 per share, or 1.7x forward price-to-sales. Dive into our free research report to see why there are better opportunities than SMRT.
One Stock to Watch:
LendingClub (LC)
Net Cash Position: $827.4 million (39.3% of Market Cap)
Pioneering peer-to-peer lending in the US before evolving into a digital bank, LendingClub (NYSE: LC) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.
Why Are We Fans of LC?
- Market share has increased this cycle as its 24.7% annual revenue growth over the last five years was exceptional
- Earnings per share have massively outperformed its peers over the last two years, increasing by 38.3% annually
LendingClub’s stock price of $18.50 implies a valuation ratio of 14.1x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
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