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 is one company with a net cash position that balances growth with stability and two that may struggle.
Two Stocks to Sell:
Matrix Service (MTRX)
Net Cash Position: $196.9 million (59.7% of Market Cap)
Founded in Oklahoma, Matrix Service (NASDAQ:MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.
Why Does MTRX Worry Us?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 2.9% annually over the last five years
- Gross margin of 3.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Performance over the past five years was negatively impacted by new share issuances as its earnings per share dropped by 66.3% annually, worse than its revenue
At $11.72 per share, Matrix Service trades at 15.6x forward EV-to-EBITDA. To fully understand why you should be careful with MTRX, check out our full research report (it’s free for active Edge members).
State Street (STT)
Net Cash Position: $63.16 billion (191% of Market Cap)
Dating back to 1792 when Boston's Long Wharf was the center of global shipping and trade, State Street (NYSE:STT) provides custody, investment management, and other financial services to institutional investors like pension funds, asset managers, and central banks worldwide.
Why Are We Wary of STT?
- Annual sales growth of 3% over the last five years lagged behind its financials peers as its large revenue base made it difficult to generate incremental demand
- Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 7.3% annually
State Street is trading at $118.28 per share, or 10.9x forward P/E. If you’re considering STT for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
Alignment Healthcare (ALHC)
Net Cash Position: $288.4 million (8.6% of Market Cap)
Founded in 2013 with a mission to transform healthcare for seniors, Alignment Healthcare (NASDAQ:ALHC) provides Medicare Advantage health plans for seniors with features like concierge services, transportation benefits, and technology-driven care coordination.
Why Are We Bullish on ALHC?
- Business is winning new contracts that can potentially increase in value as its customer base averaged 41.2% growth over the past two years
- Earnings per share grew by 30.1% annually over the last four years, massively outpacing its peers
- Free cash flow turned positive over the last five years, showing the company is at an important crossroads
Alignment Healthcare’s stock price of $16.77 implies a valuation ratio of 83x forward P/E. Is now the right time to buy? 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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