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.
Regeneron (REGN)
Net Cash Position: $5.74 billion (7.1% of Market Cap)
Founded by scientists who wanted to build a company where science could thrive, Regeneron Pharmaceuticals (NASDAQ: REGN) develops and commercializes medicines for serious diseases, with key products treating eye conditions, allergic diseases, cancer, and other disorders.
Why Is REGN Not Exciting?
- Annual sales growth of 4.3% over the last two years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 23.8 percentage points
- Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability
Regeneron is trading at $785.42 per share, or 17.4x forward P/E. If you’re considering REGN for your portfolio, see our FREE research report to learn more.
BNY (BK)
Net Cash Position: $27.1 billion (33.1% of Market Cap)
Tracing its roots back to 1784 when it was founded by Alexander Hamilton, BNY (NYSE: BK) is a global financial institution that provides asset servicing, wealth management, and investment services to institutions, corporations, and high-net-worth individuals.
Why Does BK Worry Us?
- Sizable revenue base leads to growth challenges as its 4.2% annual revenue increases over the last five years fell short of other financials companies
- Large asset base makes it harder to grow tangible book value per share quickly, and its annual tangible book value per share growth of 3.2% over the last five years was below our standards for the financials sector
- Below-average return on equity indicates management struggled to find compelling investment opportunities
BNY’s stock price of $117.38 implies a valuation ratio of 14.8x forward P/E. Dive into our free research report to see why there are better opportunities than BK.
First Bancorp (FBNC)
Net Cash Position: $604.2 million (28% of Market Cap)
Founded during the Great Depression in 1934 and originally known as Montgomery Bancorp, First Bancorp (NASDAQ: FBNC) is a community-oriented commercial bank providing a wide range of financial services to businesses and individuals in North and South Carolina.
Why Are We Cautious About FBNC?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Day-to-day expenses have swelled relative to revenue over the last five years as its efficiency ratio increased by 9.3 percentage points
- Performance over the past two years shows each sale was less profitable, as its earnings per share fell by 8.4% annually
At $52.06 per share, First Bancorp trades at 1.3x forward P/B. Check out our free in-depth research report to learn more about why FBNC doesn’t pass our bar.
Stocks We Like More
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