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. That said, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
Varonis Systems (VRNS)
Net Cash Position: $182.1 million (3.3% 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 Pass on VRNS?
- Customers had second thoughts about committing to its platform over the last year as its average billings growth of 13% underwhelmed
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 1.6 percentage points
Varonis Systems’s stock price of $46.74 implies a valuation ratio of 6.8x forward price-to-sales. If you’re considering VRNS for your portfolio, see our FREE research report to learn more.
Landstar (LSTR)
Net Cash Position: $280.9 million (4.9% of Market Cap)
Covering billions of miles throughout North America, Landstar (NASDAQ:LSTR) is a transportation company specializing in freight and last-mile delivery services.
Why Do We Avoid LSTR?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Earnings per share fell by 10.7% annually over the last five years while its revenue was flat, showing each sale was less profitable
- Diminishing returns on capital suggest its earlier profit pools are drying up
Landstar is trading at $170.30 per share, or 24.5x forward P/E. Check out our free in-depth research report to learn more about why LSTR doesn’t pass our bar.
Lake City Bank (LKFN)
Net Cash Position: $52.46 million (3.6% of Market Cap)
Dating back to 1872 and deeply rooted in Indiana's communities, Lakeland Financial Corporation (NASDAQ:LKFN) operates Lake City Bank, providing commercial and consumer banking services throughout Northern and Central Indiana.
Why Are We Cautious About LKFN?
- Muted 5% annual revenue growth over the last five years shows its demand lagged behind its banking peers
- Net interest income trends were unexciting over the last five years as its 5.8% annual growth was below the typical banking firm
- Performance over the past five years shows its incremental sales were less profitable, as its 3.3% annual earnings per share growth trailed its revenue gains
At $58.13 per share, Lake City Bank trades at 1.8x forward P/B. Dive into our free research report to see why there are better opportunities than LKFN.
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