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.
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 steer clear of and a few alternatives to consider.
nLIGHT (LASR)
Net Cash Position: $297 million (6.7% of Market Cap)
Founded by a former CEO and Harvard-educated entrepreneur Scott Keeneyn, nLIGHT (NASDAQ: LASR) offers semiconductor and fiber lasers to the industrial, aerospace & defense, and medical sectors.
Why Does LASR Give Us Pause?
- Annual revenue growth of 3.8% over the last five years was below our standards for the industrials sector
- Historical operating margin losses point to an inefficient cost structure
- Negative free cash flow raises questions about the return timeline for its investments
At $78.15 per share, nLIGHT trades at 163.4x forward P/E. If you’re considering LASR for your portfolio, see our FREE research report to learn more.
Ruger (RGR)
Net Cash Position: $103.5 million (16.2% of Market Cap)
Founded in 1949, Ruger (NYSE: RGR) is an American manufacturer of firearms for the commercial sporting market.
Why Do We Think RGR Will Underperform?
- Sales tumbled by 2.6% annually over the last five years, showing consumer trends are working against its favor
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
Ruger is trading at $40.40 per share, or 1.2x trailing 12-month price-to-sales. Read our free research report to see why you should think twice about including RGR in your portfolio.
Novanta (NOVT)
Net Cash Position: $99.59 million (1.8% of Market Cap)
Originally a pioneer in the laser scanning industry during the late 1960s, Novanta (NASDAQ: NOVT) offers medicine and manufacturing technology to the medical, life sciences, and manufacturing industries.
Why Are We Cautious About NOVT?
- Annual revenue growth of 6.1% over the last two years was below our standards for the industrials sector
- Estimated sales growth of 6.5% for the next 12 months is soft and implies weaker demand
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 5.3% annually
Novanta’s stock price of $158.42 implies a valuation ratio of 6.3x trailing 12-month price-to-sales. Dive into our free research report to see why there are better opportunities than NOVT.
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