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. Keeping that in mind, here are three companies with net cash positions to avoid and some better alternatives instead.
Inter Parfums (IPAR)
Net Cash Position: $58.9 million (2% of Market Cap)
With licenses to produce colognes and perfumes under brands such as Kate Spade, Van Cleef & Arpels, and Abercrombie & Fitch, Inter Parfums (NASDAQ:IPAR) manufactures and distributes fragrances worldwide.
Why Are We Wary of IPAR?
- Revenue base of $1.49 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Demand will likely fall over the next 12 months as Wall Street expects flat revenue
- Free cash flow margin shrank by 2.2 percentage points over the last year, suggesting the company is consuming more capital to stay competitive
Inter Parfums’s stock price of $92.38 implies a valuation ratio of 18.3x forward P/E. If you’re considering IPAR for your portfolio, see our FREE research report to learn more.
Enphase (ENPH)
Net Cash Position: $349.5 million (4.2% of Market Cap)
The first company to successfully commercialize the solar micro-inverter, Enphase (NASDAQ:ENPH) manufactures software-driven home energy products.
Why Do We Pass on ENPH?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 12.5% annually over the last two years
- Free cash flow margin shrank by 10.9 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
- Eroding returns on capital suggest its historical profit centers are aging
At $63.21 per share, Enphase trades at 33.8x forward P/E. To fully understand why you should be careful with ENPH, check out our full research report (it’s free).
Progyny (PGNY)
Net Cash Position: $221.1 million (10.8% of Market Cap)
Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ:PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.
Why Is PGNY Not Exciting?
- Underwhelming unit sales over the past two years imply it may need to invest in improvements to get back on track
- Smaller revenue base of $1.29 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
Progyny is trading at $26.32 per share, or 12.2x forward P/E. Dive into our free research report to see why there are better opportunities than PGNY.
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